Benefits of Having an Opportunity Zone Investment

Benefits of Having an Opportunity Zone Investment
Written By
Carl E. Sera, CMT
Published On
May 26, 2023

Investing in Opportunity Zones can revitalize economically compromised areas and communities. These private or public partnerships allow the government to incentivize eager investors to sell their appreciated assets. Let’s review the benefits of Opportunity Zone investments.

What Is an Opportunity Zone?

Opportunity Zones originated from the Tax Cuts and Jobs Act of 2017. They are economic development tools assisting clients in investing in distressed or low-income areas within the United States and other US-owned territories. Additionally, Opportunity Zone funds aid investors in deferring capital gains taxes from investments until December 31, 2026.

Investors have a 180-day timeline for investing eligible gains and financing Qualified Opportunity Zone Fund-eligible gain amounts to qualify for tax incentives. The first 180 days permit gains to be recognized for income tax if they are unelected for deferment. After five years of holding, their Opportunity Zone investment increases gains deferment by 10 percent. It increases an additional five percent after the seven-year mark, then becomes permanently excluded after reaching the 10-year holding mark.

What Are the Benefits of Opportunity Zones?

Three tax benefits come with Opportunity Zones: step-up in basis, temporary deferral, and permanent exclusion. As previously mentioned, permanent taxable income exclusion for capital gains on exchanges or sales of an Opportunity Zone investment if held for 10 years. However, this occurs toward gains accrued after making an Opportunity Zone investment.

Opportunity Zones can create temporary taxable income capital gains deferment. The deferrable gains should become recognized before being disposed of or before December 31, 2026. Lastly, a step-up in basis creates gradual increases in exclusion after a certain holding period.

Choosing the Right Qualified Opportunity Zone

Choosing the right Opportunity Zone investment depends on the qualifications. These include developing and upgrading vacant homes for single-use family rental facilities or redevelopment of abandoned properties for residential qualify for Opportunity Zone investment. New commercial constructions, such as multi-family, business, and other developing properties, also qualify.

Sera Capital can help individuals find the right Opportunity Zone funds for investing purposes. We specialize as a fee-only fiduciary to grow businesses and offer financial management services, advice, and education. Our Opportunity Zone consultants provide solutions to business investors and highly-appreciated stock owners in deferring capital gains tax. Contact us today with any questions about our Opportunity Zone services.

Carl E. Sera, CMT

Carl E. Sera, CMT

Managing Principal, Sera Capital
Carl Sera is a Chartered Market Technician and the Managing Principal at Sera Capital Management, LLC. He has over 16 years of experience in the financial services industry with a focus on investment management.

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