Opportunity Zones are an interesting and relatively new real estate concept that was created through the Investing in Opportunity Act. In short, Opportunity Zones are real estate zones that offer special tax incentives to investors who follow the rules of the program. Let’s take a look at how Opportunity Zones could play into your next real estate investment plan.
How Do Opportunity Zones Work?
We all know about disadvantaged neighborhoods near the places where we live. These areas are typified by high poverty rates and relatively low median family incomes. Focused investments in these zones can help relieve some of these issues.
Today, areas around the above-mentioned communities can be nominated as Opportunity Zones. When an investor contributes to Opportunity Zones through qualified Opportunity Funds (U.S. partnerships or corporations that intend to invest at least 90% of its holdings in one or more qualified Opportunity Zones), he or she can receive capital gains tax incentives. These incentives are not insignificant, and the highest incentives go to those who hold their investments for at least ten years.
How Many Opportunity Zones Are There?
There are already more than 8,700 Qualified Opportunity Zones in the United States. The District of Columbia and five major U.S. possessions (Puerto Rico, American Samoa, the Northern Mariana Islands, Guam, and the Virgin Islands) also have these designations.
Are Capital Gains Incentives Enough to Spur Investments?
Deferment or permanent exclusion from paying capital gains taxes will be enough to motivate some investors to consider investing in Opportunity Zones through Opportunity Funds. The program will likely encourage improvements in the quality of life for those in disadvantaged areas.
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