What Is an Opportunity Zone in Real Estate?
Carl E. Sera, CMT
March 17, 2023
Opportunity Zones allow investors to defer capital gains tax and experience growing capital. Keep reading to learn about Opportunity Zones in real estate.
What Are Opportunity Zones?
An Opportunity Zone occurs in an economically distressed community where private investments, known as real estate development, can become eligible for capital gain tax incentives. They’re also known as Qualified Opportunity Zones (QOZs).
Opportunity Zones came to fruition through the 2017 Tax Cuts and Jobs Act, focusing on boosting jobs and economic growth by encouraging investments. The goal of Opportunity Zones focuses on making areas more appealing to live, work, and invest in through land improvements, construction and remodeling, and purchasing locations.
Benefits of Opportunity Zones
Investing in an Opportunity Zone can result in a financial payoff. One significant benefit of OZs is the low pricing and high appreciation. Many areas appreciate substantially more value than national trends dictate when purchasing a home in an Opportunity Zone.
QOZs represent good bargains, as buyers feel less inclined to purchase in these areas, which results in lower prices. Another benefit to Opportunity Zones is their tax breaks, where real estate investors and developers can take advantage of tax incentives that improve the longer they own the property. These properties can become eligible for capital gains tax deferment on federal taxes. Moreover, investors put existing assets with capital gains into QOFs, and taxing the existing capital gains won’t occur until the asset becomes sold or ends in 2026.
Do You Live in an Opportunity Zone?
If you’ve invested in a home within an Opportunity Zone, keeping tabs is a smart way of monitoring its changing value. Knowing the depth to which it can appreciate can be considerably helpful, especially if you plan on selling your home, tapping into your home’s equity, or refinancing your mortgage. The program focuses on boosting the local economy and enabling communities to attract capital growth.
How do you invest in an Opportunity Zone in real estate? Many people can purchase commercial properties or homes in an Opportunity Zone. However, the investment must meet Qualified Opportunity Zone requirements if investors want to take advantage of tax benefits. Opportunity Zones are investment vehicles that file corporate federal income tax returns or partnerships organized for QOZ property investing. It’s crucial to hire an experienced attorney to meet specific requirements involving filing and becoming acknowledged as a QOF.
Sera Capital is a fee-only fiduciary focused on tax-efficient exit planning for investors. Our Opportunity Zone advisors educate and guide clients in the right direction for substantial tax-saving opportunities. Schedule a free 30-minute phone call with us today.