OZ provides federal incentives through Tax Cuts and Jobs Act of 2017

Opportunity Zones (OZ), first proposed in the bipartisan Investing in Opportunity Act, were originally introduced in Congress in 2016 and designed with a specific premise — to encourage private investment in communities struggling to attract capital, create jobs, and lift residents out of poverty. 

The Opportunity Zone program was subsequently created and enacted by Congress in the Tax Cuts and Jobs Act of 2017. In brief, OZs provide federal incentives for certain types of long-term, productive investments in low-income urban and rural communities nationwide.

So, what are the benefits for OZ investors?

Those who invest capital gains into a Qualified Opportunity Zone Fund (QOF) are eligible for the following benefits if they meet the holding period requirements.

  • Defer —Capital gains can be deferred until Dec. 31, 2026, with the related tax payable in 2027.
  • Reduce — Investors who hold an OZ investment for five years can exclude 10% of the deferred gain (i.e., they only pay tax on 90% of the gain). To receive this benefit, an investment must be made on or before Dec. 31, 2021.
  • Pay zero — Investors who hold their investments in OZs for at least 10 years face no taxes on any appreciation in value of the investments when sold.