Thanks to the 2017 Tax Cuts and Jobs Act that was started by the Trump Administration, we now have Opportunity Zones but what exactly are Opportunity Zones and how can you make them work for you?
In this article, we will provide you with insight into Opportunity Zones and useful tips if you plan on utilizing them in your Real Estate Investing business.
What Exactly Are Opportunity Zones?
An Opportunity Zone is a census tract that’s composed of communities that have been classified as “economically distressed” according to the Tax Cuts and Jobs Act.
With an opportunity zone, you can take the proceeds from the sale of a property and defer paying Capital Gains taxes for up to 7 years when you invest the proceeds from that property into an O Zone.
Right now, there are Opportunity Zones in roughly all 50 States including American Samoa, Puerto Rico, and the U.S. Virgin Islands.
As of April 2019, about 25% of low-income neighborhoods in the United States qualify as Opportunity Zones
Tax Benefits of Investing in Opportunity Zones
Deferred Capital Gains Tax —Sell current assets and invest the taxable capital gains in Opportunity Funds. Do this within 180 days of selling the assets to avoid paying capital gains tax (until the fund is divested or until December 31, 2026).
Basis Step—Ups – Increase rolled-over capital gains:
- 5-year O-Funds holding produces a 10% basis step-up
- 7-year O-Funds holding produces 5% more (15% total)
Tax Exempt Potential —Hold Opportunity Funds for 10 years – they grow tax-free and are exempt from capital gains
Fewer Limits —O-Fund investments have fewer limits than other investments. There are no limits on:
The amount invested
How much tax you avoid
The type of taxes you avoid
The amount of time that gains compound tax-free
When an investor chooses to invest money in Opportunity Zone Communities, they will enjoy a variety of Capital Gains Incentives both immediately and over a period of years.
The good thing about this program is that it’s been stimulating investment across the United States since there are roughly $6.1 trillion dollars of private gains that are held by households across the United States.
Opportunity Zones are also better for investors in the long run because they are not as costly and restrictive as other Government programs like the New Markets Tax Credit or the Housing Tax Credit
In the Houston area, we have 150 opportunity zones that stretch from New Caney to the East Downtown Houston area in a wide variety of industries including real estate development, restaurants and also manufacturing.
Contact Vestpro Residential Services
Do you have questions about investing in Opportunity Zones in the Houston area or are you interested in learning more about our property management services? Contact us today by calling (832) 971-1841 or click here to connect with us online.