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Opportunity Zone Tax Benefits

[Disclaimer:  The Assembly Jobs Committee does not provide tax, legal, or accounting advice. This website has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. ]

Federal law authorizes a broad range of Opportunity Zone (OZ) business investments, including investments in stock, partnership interest, and business property.  A qualified OZ business property investment may include new and substantially improved tangible property, including commercial buildings, equipment, and multifamily housing complexes.

Essential Eligibility Requirements

  • The investment must be made through a qualified Opportunity Fund.  Current guidance from the Internal Revenue Service is that the Opportunity Fund is to self certify that it meets federal tax requirements;
  • The investment must be made in a designated OZ.  Here is a link to California's designated OZs; and
  • At least 90% of the funds in the Opportunity Fund are required to be deployed in an eligible investment activity within the designated OZ.

Potential Taxpayer Benefits

  • A temporary deferral taxes attributed to capital gains reinvested in an Opportunity Fund.  The tax deferral must be recognized on December 31, 2026, or earlier if the OZ investment is disposed earlier;
  • The tax liability for capital gains reinvested through an Opportunity Zone also enjoy a step-up in basis.  The basis is increased by 10% if the investment in the Opportunity Fund is held by the taxpayer for at least five years and by an additional 5% if held for at least seven years, thereby excluding up to 15% of the original gain from taxation; and
  • There is a permanent exclusion from taxable income for capital gains resulting from the sale or exchange of an investment in an Opportunity Fund if the investment is held for at least 10 years. This exclusion only applies to gains accrued after an investment in an Opportunity Fund.

 

U.S. Treasury Guidence on Designation of Opportunity Zones - released February 2018

U.S. Treasury Guidence on Investments by Opportunity Funds - Released October 2018

U.S. Treasury PROPOSED Guidence on Investments in Opportunity Funds - released for 61 day public comment period on May 1, 2019

 

Additional U.S. Treasury, Internal Revenue Service Guidance

Frequently Asked Questions

Internal Revenue Code 1400Z

Public Comment Letter Submitted to U.S. Treasury

OZ Coalition Letter Requests Guidance from IRS, Treasury, June 27, 2018 - 11:15 am

U.S. Conference of Mayors Letter Requests Guidance from IRS, Treasury, August 23, 2018

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