Savvy investors are taking advantage of new Opportunity Zone investments with tax laws that allow significant deferrals — or complete elimination — of capital gains for long-term investments aimed to spark economic development.
Opportunity Zones are census tracts, nominated by governors and certified by the U.S. Department of the Treasury, into which investors can invest in new projects intended to spur economic development in exchange for certain federal tax benefits. An investor who has triggered a capital gain by selling an asset such as stocks or real estate can receive special tax benefits if they roll that gain into a Qualified Opportunity Fund (QOF) within 180 days. At the present time, there are 68 tracts in Miami-Dade County designated as Opportunity Zones. This could change in the future.
A wide array of real estate sectors qualify, including multifamily and/or affordable housing, industrial developments and mixed-use developments, which include hospitality and/or retail. Eligible investments are generally restricted to new developments and capital-intensive renovations. When combined with the lack of state income taxes in Florida, the dynamics in these markets create a favorable environment for development and investment. Significantly, one does not have to reside, work or own a business in the Opportunity Zone to qualify for this tax advantage.
Investors can defer the payment of capital gains tax on any prior gains invested in a QOF vehicle until the earlier of the date on which the investment in a QOF is sold or exchanged, or December 31, 2026. In addition, if the QOF investment is held for 5+ years, there is a 10% exclusion of the deferred gain; and if held 7+ years, there is a 15% exclusion. Incentives are set up to encourage a long-term hold of the investment. If the QOF is held for 10 years or more, an investor can expect to pay zero capital gains taxes on any appreciation from the sale of an investment in an Opportunity Fund.
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