How is money made in the zone, Opportunity Zones Facts and Figures - Economic Innovation Group
But a program embedded in the Tax Cuts and Jobs Act offers investors a tax incentive to do just that.
As a result, a new type of fund that invests in low-income communities has popped up, and investors and institutions alike are starting to take notice. A Dozen Great REITs for Income AND Diversification The new OZ funds pool money from multiple investors and invest in businesses and real estate development projects located in economically distressed communities that the federal government has designated as in need of investment.
The more than 8, opportunity zones include parts of nearly every major American city, including Chicago and Los Angeles, as well as all of Puerto Rico and remote towns in Alaska.
In the summer ofthe U. Department of the Treasury certified 8, individual census tracts across all 50 states, six territories, and the District of Columbia as Opportunity Zones. These communities were chosen by governors from the wider universe of qualifying low income census tracts.
Investors who put money in OZ funds can defer and eventually reduce taxable capital gains, depending on how long go to buy an option stay invested. Triple tax break.
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First, you can defer federal capital gains tax on money you have earned from another investment by putting it into an OZ fund.
The idea is to encourage investors to sell existing investments and invest the proceeds in an OZ fund. Second, the longer you hold your investment in the fund, the more you can reduce the amount of rolled-over gain that will be subject to tax.
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For how is money made in the zone tax year, whether you sell or hold your investment in the OZ fund, you must pay any federal capital gains tax you owe on the profits you rolled into the OZ fund. Hold for 10 years or more and a third benefit kicks in: Any gain in your investment in the fund is tax-free—as long as your outlay was made with capital gains from a prior investment.
Some funds require that you hold for 10 years, but the vast majority allow you to sell at any time.
Since the tax act passed, qualified OZ funds have opened, according to the National Council of State Housing Agencies, a nonprofit group focused on affordable housing it maintains a directory of OZ funds on its website, www. But not everyone can buy in. Most funds come with a six-figure investment minimum, too.
Fee structures tend to mimic those of hedge funds and private-equity investments: Investors pay an annual fee of 1. Not ready for prime time. In fact, the rules on what an OZ fund can invest in and how it should operate are still evolving.
The Middle Man
Many kinds of businesses qualify under the current guidelines, but a few, including golf courses, massage parlors, casinos and liquor stores, are excluded. If you qualify and you want to invest in an OZ fund, first consider whether the investment is a good one, regardless of the potential tax benefit.
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- Among the early beneficiaries of the tax incentive are billionaire financiers like Leon Cooperman and business magnates like Sidney Kohl — and Mr.
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- What are Opportunity Zones and how do they work?
- The Port Morris neighborhood in the Bronx has several designated opportunity zone tracts.
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- Is Anyone Actually Investing in Opportunity Zone Funds? | Institutional Investor
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Understand, too, that distressed real estate deals are inherently risky. The bigger concern, however, is whether the manager is new or inexperienced.
- What are Opportunity Zones and how do they work? | Tax Policy Center
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Many OZ fund managers, it turns out, are untried, according to a survey from alternative investment research firm Preqin. Some research is also required on the contractors and developers who will execute the investment projects.