A new opportunity for taxpayers under the new U.S. tax law.
In this publication, KPMG presents insights on the Opportunity Zones program. Learn more about the potential tax benefits, necessary qualifications based on recent proposed regulations, and the timeframe to act in order to maximize tax savings.
The 2017 Tax Act added section 1400Z, which allows for the deferral and partial exclusion of gains from the sale or exchange of any asset that is reinvested in a Qualified Opportunity Fund (Q Fund) that invests in property or businesses located in designated as Qualified Opportunity Zones (QOZ). QOZs generally are low-income areas across the Unites States, the US territories and the District of Columbia. In addition, any further gains generated through an investment in a Q Fund may be permanently excluded from income if held for at least 10 years.
Tax incentive #1
Q Fund investors may defer gains realized upon the sale or exchange of property if the gain proceeds are reinvested within 180 days into a Q Fund. At the time of the investment, the basis in the Q Fund is zero.
Tax incentive #2
Basis of the Q Fund investment increases by 10 percent of the deferred gain if held for 5 years from the date of reinvestment, and an additional 5 percent after 7 years for a total of 15 percent. The gain must be recognized the earlier of the date that the Q Fund investment is sold or December 31, 2026. Consequently, for Q Fund investments made in 2018 and held for 7 years, the taxpayer will recognize a 15 percent reduction in taxable gain.
Tax incentive #3
Any appreciation on investments in Q Funds that are held for at least 10 years are excluded from gross income – therefore, if held for 10 years, any gain on the investments is tax free.
Zone qualification & feasibility:
Implementation & compliance:
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Listen to our recent Webcast on Opportunity Zones.
Summary of the recently proposed regulations for the Opportunity Zone provisions.
Opportunity Zones are the buzz, but are organizations considering pursuing them? See how participants responded when polled to questions about QOFs during our recent TaxWatch Webcast on Opportunity Zones.