A mapping tool is available via the EIG website or via the TNECD projects directory. Zone designations were certified in Spring 2018 and will remain in effect until December 31, 2028. Any qualifying investment made through a qualifying Opportunity Fund into a qualifying Opportunity Zone will be eligible for the applicable tax benefits through that date.

Opportunity Zones are designed to incentivize new equity investments in low-income communities nationwide. All of the underlying incentives relate to the tax treatment of capital gains, and all are tied to the longevity of an investor’s stake in a qualified Opportunity Fund. There are three separate tax incentives:

Temporary deferral: A temporary deferral of inclusion in taxable income for capital gains reinvested into an Opportunity Fund. The deferred gain must be recognized on the earlier of the date on which the Opportunity Zone investment is disposed of or December 31, 2026.

Step-up in basis: A step-up in basis for the deferred capital gains reinvested in an Opportunity Fund. The basis is increased by 10% if the investment in the Opportunity Fund is held by the taxpayer for at least 5 years and by an additional 5% if held for at least 7 years, thereby excluding up to 15% of the original deferred gain from taxation.

Permanent exclusion: A permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in an Opportunity Fund if the investment is held for at least 10 years. This exclusion only applies to gains accrued on investments made through an Opportunity Fund. There is no permanent exclusion possible for the initially deferred gain.

*Source: EIG

Opportunity zones are designed to spur economic development by providing tax benefits to investors. First, investors can defer tax on any prior gains invested in a Qualified Opportunity Fund (QOF) until the earlier of the date on which the investment in a QOF is sold or exchanged, or December 31, 2026. If the QOF investment is held for longer than 5 years, there is a 10% exclusion of the deferred gain. If held for more than 7 years, the 10% becomes 15%. Second, if the investor holds the investment in the Opportunity Fund for at least ten years, the investor is eligible for an increase in basis of the QOF investment equal to its fair market value on the date that the QOF investment is sold or exchanged.

A QOF is any investment vehicle organized as either a partnership (including an LLC treated as a partnership for tax purposes) or corporation that was formed for the purpose of investing in qualified opportunity zone property (“QOZ Property”).  A QOF self-certifies with IRS filing Form 8996. QOF not required to seek pre-approval or related action to operate as a Fund.  The private sector is responsible for establishing Opportunity Funds. Guidelines to set up an Opportunity Fund or other Opportunity Zone FAQs can be found here.

The policy enables funds to be responsive to the needs of different communities, allowing for investment in operating businesses, equipment, and real property. For example, funds can make equity investments in new or expanding businesses by purchasing original-issue stock of the company if substantially all of the company’s tangible property is and remains located in an Opportunity Zone. Funds can take original interests in partnerships that meet the same criteria. Funds can also invest directly in qualifying property, such as real estate or infrastructure, if the property is used in the active conduct of a business, and if either the original use of the property commences with the fund or the fund substantially improves the property by investing at least as much as the investor’s basis in refurbishments.