Requirements for Opportunity Zone Investments

Requirements for Opportunity Zone Investments
Written By
Carl E. Sera, CMT
Published On
June 7, 2023

Opportunity Zones are a relatively new concept investors have been exploring to meet their financial goals. But what are some of the requirements of Opportunity Zone investments? Let’s find out.

Benefits of Opportunity Zone Investments

There are many beneficial reasons that investors choose Opportunity Zones. First, they provide tax deferral from capital gains. As such, investors can use existing assets with accumulated capital in Opportunity Funds, which won’t get taxed until 2026. Secondly, Opportunity Zones provide a step-up basis, allowing investors to increase the deferment percentage the longer investors hold onto their Opportunity Zone funds.

Additionally, once investors reach their tenth year of holding their investments, they receive a permanent exclusion of their taxable income on new gains. As a result, investors don’t pay taxes on capital gains from their Opportunity Zone investments.

What Are the Opportunity Zones Requirements?

Despite their many positives, Opportunity Zones have specific requirements that must get met. Firstly, Opportunity Zones funds are investment vehicles and must get filed as corporation deferral income tax returns or partnerships organized for investing in OZ properties. Investors must file Form 8896 from the IRS to create a quality opportunity fund. As such, OZ funds must have at least 90 percent of their assets invested in businesses located in Qualified Opportunity Zones.

Furthermore, to qualify for capital gains tax deferment, the investor must invest in an Opportunity Fund within 180 days of the asset sale. As an Opportunity Zone receives investor funds, they must only remain held for up to six months before investing in an Opportunity Zone.

Opportunity Zone Investment Considerations

Before making Opportunity Zone investments, it’s necessary to consider potential risks. The primary purpose of Opportunity Zones is to help promote underdeveloped markets with assets. Because it’s a particularly new concept, Opportunity Zones operate as long-term investments that must meet contractual obligations. Furthermore, these investments must provide capital—if obligations aren’t satisfied, they could have adverse consequences, including forfeiture of interest.

Opportunity Zones have comparatively higher risks compared to various investment methods. Because of its short operation history, investment returns, property appreciation, resale opportunities, or returns aren’t always guaranteed. Investors must understand that their investments can lose value over time, limiting liquidity options and being in a secondary market.

Sera Capital offers its clients exceptional investment services and advice for reaching their financial goals. Our Opportunity Zone investment specialists help guide and educate investors in investing in low-income areas throughout the United States. For more information on our Opportunity Zone investment services and questions, contact us at Sera Capital today.

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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