Even when the national economy is booming, some communities inevitably get left behind. Too many years of lagging growth can send developers, businesses, and residents fleeing, with blight almost always filling in the gaps that result.
Many communities that have seen better days face uphill battles as they fight to recover. Decades can pass with no progress being evident, in the absence of the right types of support.
In 2017, Congress passed a tax reduction act that included some long-awaited help for sites and regions struggling to get back on track. Developers focusing on any of the 9,000 so-called “Opportunity Zones” enabled by the legislation became eligible for tax breaks and other types of incentives.
Congress made sure that money would flow to these areas by authorizing perks for investors, too. Interest in opportunity zone investments has been rising steadily since these opportunities became available. Investors who understand what Opportunity Zones are and how they work stand to benefit in several ways.
Amply Justified Interest in a More Flexible Way to Avoid Capital Gains Taxes
Capital gains tax rates are quite low by historical standards, but they still feel fairly punitive to many investors. Simply selling an asset that has appreciated since being purchased will often force its former owner to hand over a significant portion of the gains to the government.
Of course, there are ways to lower the tab, some of which work naturally into certain investment strategies. Sales of assets like primary residences, for instance, can normally be shielded from capital gains taxes by investors who plan ahead.
Interest in the Tax Cuts and Jobs Act of 2017 was especially high among investors because it included an unusually versatile tax-trimming tool. Although not a centerpiece of that statute, the Opportunity Zones the law created afford shelter to investors facing capital gains of almost any kind.
Zones and Funds Designed to Create New Opportunities for Distressed Communities
The Internal Revenue Service has since certified thousands of official Opportunity Zones nationwide. Almost all of these feature prominent signs of economic distress like very low average incomes and property values.
Investors who wish to make use of Opportunity Zones themselves do not need to worry about such details. The vast majority of all related investor involvement is mediated and managed by funds that focus specifically on this type of activity.
All that it will normally take to leverage the preferential tax treatment described in the 2017 act is to contribute to a Qualified Opportunity Fund. Typically organized as either partnerships or stock-issuing corporations, these entities streamline things enough that even everyday investors can participate.
A Simple Way to Secure Advantageous Tax Treatment While Helping Out
Unlike many other strategies that aim at reducing capital gains taxes, investing in a Qualified Opportunity Fund is almost always applicable. Investors do need to commit their capital for a number of years if they are to derive any benefit, however.
The longer an investor’s contribution remains in a Qualified Opportunity Fund, the more the cost basis of the associated capital asset increases. An investor who sticks with an Opportunity Zone for five years will see the basis of the original investment rise by ten percent.
Any gains that are realized from the fund itself can be enjoyed entirely tax-free. Given that just about any capital gain can be used to fund a contribution, investing in Opportunity Zones is an especially versatile way to lower an active investor’s tax bill.
