Opportunity Zones: Understanding the Potential Benefits

Reinvesting capital gains to unlock new tax savings

 

Qualified opportunity zones (QOZs) introduce a new tool—open to taxpayers—for deferring and reducing capital gains to unlock substantial tax incentives. The new tax law's objective is to promote long-term investment in QOZs across the country.

 

Watch our video to learn the basics about the potential tax benefits for businesses who invest in QOZs

 

Learn more about QOZ's potential benefits:

The provision provides these tax incentives:

 
 

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.

 
 

 

KPMG's two-phase QOZ approach:

 
 

Zone qualification & feasibility

• Determine the applicability and economic/tax benefits of a QOZ investment

• Assemble a business incentive feasibility study

• Prepare a project profile for economic development representatives

• Assist in responding to inquiries from economic development representatives

 
 
 
 

Implementation & compliance

• Review for qualification purposes of the gain to be deferred under QOZ rules

• Review Q Fund formation documents for a partnerships or corporations

• Review contribution and partnership agreements for federal and state tax implications

• Assist the Q Fund in acquiring assets to satisfy the Q Fund qualified asset test

• Compliance support with respect to Q Funds

• Audit and advisory services, as needed

• Monitor Q Funds for continuing compliance under the Opportunity Zone requirements

 
 

Opportunity knocks

KPMG's experience and knowledge can help you prepare for QOZ opportunities

 

Are QOZs right for me?

Discover how QOZs may benefit individuals, families, and organizations in the following areas:

 

Contact us

 
 
Joseph Scalio

Joseph Scalio

Senior Lead Tax Partner, KPMG (US)

+1 267-256-2778
 
 
Richard Blumenreich

Richard Blumenreich

Principal-in-Charge, Tax Credits and Energy Advisory Services, Washington National Tax, KPMG (US)

+1 202-533-3032
 
 
Tom West

Tom West

Principal, Passthroughs Group, Washington National Tax, KPMG LLP (U.S.)

+1 202-533-3212
 
 
Orla O'Connor

Orla O'Connor

Tax Principal, KPMG LLP

+1 415-963-7511