Opportunity Zone Funds
By: Financial Hotline
Winter 2019 (Vol. 36, No. 4)
Q: What is an Opportunity Zone?
A: Opportunity Zones were added to the tax code by the Tax Cuts and Jobs Act on December 22, 2017. These zones are designed to spur economic development by providing tax benefits to investors. First, investors can defer tax on any prior gains invested in a Qualified Opportunity Fund (QOF) until the earlier of the date on which the investment in a QOF is sold or exchanged, or December 31, 2026. If the QOF investment is held for longer than 5 years, there is a 10% exclusion of the deferred gain. If held for more than 7 years, the 10% becomes 15%. Second, if the investor holds the investment in the Opportunity Fund for at least ten years, the investor is eligible for an increase in basis of the QOF investment equal to its fair market value on the date that the QOF investment is sold or exchanged. The zones are generally located in economically-distressed communities. Opportunity Zones have now been designated covering parts of all 50 states, the District of Columbia and five U.S. territories.
Q: What is a Qualified Opportunity Fund?
A: A Qualified Opportunity Fund (QOF) is an investment vehicle that is set up as either a partnership or corporation for investing in eligible property that is located in a Qualified Opportunity Zone. You, as an individual, can set up your own by yourself or with partners or you may choose to invest in the many funds already up and running.
Q: Where can I find a list of Opportunity Zone locations?
A: The list of designated Qualified Opportunity Zones can be found at the US Treasury Community Development Financial Institutions Fund website: www.cdfifund.gov Just click on “Tools and Resources” in the upper right for a complete list (www.cdfifund.gov/Pages/Opportunity-Zones.aspx) The list is also published in the Federal Register at IRB Notice 2018-48.
Q: What do all the numbers mean on the Qualified Opportunity Zones list, Notice 2018-48?
A: The numbers are the population census tracts designated as Qualified Opportunity Zones. Check with your state or local government for a more user friendly map or addresses.
Q: How can I find the census tract number for a specific address?
A: You can find 11-digit census tract numbers, also known as GEOIDs, using the U.S. Census Bureau’s Geocoder. After entering the street address, select ACS2015_Current in the Vintage drop-down menu and click Find. In the Census Tracts section, you’ll find the number after GEOID.
Q: How does a corporation or partnership become certified as a Qualified Opportunity Fund?
A: To become a Qualified Opportunity Fund, an eligible corporation or partnership self-certifies by filing Form 8996, Qualified Opportunity Fund, with its federal income tax return. The return with Form 8996 must be filed timely, taking extensions into account. An LLC that chooses to be treated either as a partnership or corporation for federal tax purposes can also organize as a Qualified Opportunity Fund.
Q: I sold some stock for a gain in 2018, and, during the 180-day period beginning on the date of the sale, I invested the amount of the gain in a Qualified Opportunity Fund. Can I defer paying tax on that gain?
A: Yes, you may elect to defer the tax on the amount of the gain invested in a Qualified Opportunity Fund. Therefore, if you only invest part of your gain in a Qualified Opportunity Fund(s), you can elect to defer tax on only the part of the gain which was invested. You may make an election to defer the gain, in whole or in part, when filing your 2018 Federal Income Tax return. That is, you may make the election on the return on which the tax on that gain would be due if you do not defer it.