Socially Responsible Opportunity Zone Funds: A New Era of Investing

Written By
Carl E. Sera, CMT
Published On
July 10, 2023

Learn about the potential for socially responsible investment in OZF, including its environmental, social, and governance policies, and how it aligns with sustainability goals.

Opportunity Zones offer investors the ability to help under developed areas, as well as revitalize communities in need.Profits were formerly the sole motive for both private and publicly traded firms. The bottom line dictated how and where they invested. That may still be true to a significant extent. Companies, on the other hand, are discovering that it is feasible to make a profit while also making an effect with their investment dollars.

Opportunity Zones, which were established on a bipartisan basis as part of the 2017 tax overhaul, were designed with that goal in mind: private investment used for the public good on the basis of socially responsible investment.

What Are Opportunity Zones And Who Lives There?

The US’s qualified opportunity zones, which were created by the 2017 Tax Cuts and Jobs Act, are an economic development tool that permits people to invest in economically distressed areas in the country suffering from social or economic hardships. There are thousands of low-income communities in all 50 US states, as well as the five US territories that have been designated as qualified opportunity zones.

Figures reveal that the opportunity zones are largely populated by ethnic minorities. According to the Economic Innovation Group, “Of opportunity zone residents, 57% are non-white minorities, compared with 39% of the country as a whole. Black Americans are particularly over-represented in opportunity zones, constituting more than twice as large a share of the zone population as they do the national population.”

How Qualified Opportunity Funds Can Benefit Impact Investors

Above and beyond the preferential tax treatment for taxpayers, investing in an opportunity zone program can bring forth community development and goodwill, generate positive public relations and additional benefits in the political arena. Keep reading to find out how investing in an opportunity zone fund can help you.

Spark Economic Growth

Qualified Opportunity Funds invest in assets in economically challenged places designated as Qualified Opportunity Zones for economic development.

These funds, which are typically created as partnerships or companies, can own a wide range of properties in Qualified Opportunity Zones, including apartment complexes, single-family houses, and start-up enterprises. By investing in these funds, you may provide communities with a much-needed economic boost.

Big Tax Incentive

Let’s say you have a taxable capital gain from the sale of appreciated property (investment assets, art, real estate, a business, business property, or stocks, for example). You can potentially receive some compelling tax breaks if you reinvest that gain in a Qualified Opportunity Fund within 180 days of the sale. For example, you can:

Defer realizing the gain as income and paying the capital gains taxes on the sale of the appreciated assets until December 31, 2026, or until the Opportunity Zone investment is sold (whichever comes first).

Reduce the capital gains tax you pay by up to 15 percent because of an increase in the basis of the appreciated assets used to buy the fund interest.

Availability of Affordable Housing

Increased availability of affordable housing is one example of how investment in opportunity zones can assist poor areas in the United States level up while providing favorable tax advantages to investors.

Such incentives are also assisting in the funding of new housing endeavors such as low-income housing, workforce housing, and mixed-use housing. There are vacant or soon-to-be unoccupied retail and office spaces in many opportunity zones that can be turned into homes with an affordable and social impact component.

Final Thoughts

Despite the risk of gentrification, investments in opportunity zones can have a good impact on leveling up in disadvantaged communities. However, the key point when investing in an opportunity zone is to align the investments with the needs of the community, as this will give the investment the best chance of boosting the area's economic development, assisting in the achievement of the UN's Sustainable Development Goals, and providing solid returns and tax benefits to the investors. This is an actual win-win situation.

At Sera Capital, we understand that Opportunity Zones genuinely have the power to impact the country’s most underserved communities in the short term and for decades to come. That is why as we proceed with new projects, we will consider not only economic returns but also how these Opportunity Zone projects will align with our investor's goals.

If you would like to learn more about Sera Capital Opportunity Zone fund investments, please contact Sera Capital today for a free consultation.

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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