The designation of Opportunity Zones is designed to help spur the development of identified communities. In exchange for investing in Opportunity Zones, investors can access capital gains tax incentives available exclusively through Opportunity Zones. To access these tax benefits, investors must invest in Opportunity Zones specifically through Opportunity Funds. A qualified Opportunity Fund is a US partnership or corporation that intends to invest at least 90% of its holdings in one or more qualified Opportunity Zones.
Because Opportunity Zones are intended to stimulate positive growth within designated communities, there are restrictions on the types of investments in which an Opportunity Fund can invest. These investments are called “Qualified Opportunity Zone property,” which is defined as any one of the following:
Partnership interests in businesses that operate in a qualified Opportunity Zone.
Stock ownership in businesses that conducts most or all of their operations within a qualified Opportunity Zone.
Property such as real estate located within a qualified Opportunity Zone.
The innovations of Opportunity Zones offer substantial potential to help lift economically distressed communities in pinpointed ways using a market-based approach. Investors have the power not only to transform thousands of census tracts across the US, they also can access numerous capital gains tax incentives if they stay within the guidelines governing Opportunity Zones and Opportunity Funds. This program was created with the 2017 passage of the Tax Cuts and Jobs Act which established two new Internal Revenue Code (IRC) sections: IRC sections 1400Z-1 and 1400Z-2. IRC section 1400Z-1 governs Opportunity Zones and IRC section 1400Z-2 governs Opportunity Funds.