Capitalizing on Real Estate Opportunities: An Introduction to Investing in Opportunity Zones
The 2017’s Tax Cuts & Jobs Act offers an impressive opportunity for real estate investors. An opportunity zone is an opportunity for unlocking unrealized capital gains. While trying to leverage the benefits of this amazing large sum of unrealized capital, the US congress launched the opportunity zone program.
What are opportunity zones?
Qualified opportunity zones are pre-choose distressed communities around the USA with a higher need and higher potential for revival. Some communities failed to recover after the previous recession and have now become qualified opportunity zones. The program is a provision of the tax cuts & jobs acts that lets real estate investors benefit from preferential tax treatment on capital gains after they invest in these communities. So, the distressed communities will enjoy the influx of funding and developments.
The qualified opportunity zones are found in all states in the US housing market and Puerto Rico and Columbia districts. The program promotes long-term investments to grow new businesses, support existing businesses, and fund important real estate projects in those communities.
Reasons to invest in opportunity zones
One of the reasons why real estate investors love the Opportunity Zones real estate program is that it provides the best tax avoidance opportunity of a lifetime. Irrespective of the origin of your capital gains, whether sales of your business, stocks, or real estate investment, the government lets all participating investors defer paying any tax on capital gains after investing them in a qualified opportunity fund.
Nevertheless, the deferral of capital gains tax is one of the many perks of investing in opportunity zones. Real estate investors will benefit from tax deductions and tax cuts. Nevertheless, this will depend on the period you’ve been holding the investment with the qualified opportunity fund.
- You get the first tax cut if you hold the property for more than 5 years. 10 percent of the initial capital gains aren’t included in the taxation
- You get a large tax cut after holding your property for more than 7 years. 15 percent of the initial capital gain is not included in the taxation.
- You get a larger tax cut after holding your property for more than 10 years. You get lifetime exclusion from taxable revenue on your opportunity zone gains.
Tips for investing in opportunity zones
With the opportunity zone program’s unique set of tax benefits, every real estate investor wants to invest in this program. Investing in opportunity zones is easy. Start by selling the appreciated real estate investment asset and realize the capital gains. Invest your capital gains in the QOF ( qualified opportunity fund) within 6 months from the sale of your assets. After reinvesting the gains, you become eligible for a temporary tax deferment on your capital gains. You can defer taxes until you decide to sell your opportunity zone investment.
Important things to remember:
- All opportunity zones are not equal
- Not every asset qualify for tax benefits
- Long-term opportunity zone investments are the best
Investing them in opportunity zones is the best option if you want to sell your investment assets but don’t want to pay any tax on capital gains. This provides the best investment opportunity for real estate investors who want to diversify their investment portfolios, take advantage of the tax breaks and reap the benefits of skillfully managed funds.
