4 Interesting Facts Savvy Investors Need to Know About Opportunity Zones

4 Interesting Facts Savvy Investors Need to Know About Opportunity Zones

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Opportunity Zones is the trending topic in commercial real estate, and many investors are trying to get the hang of it. The last time such a program existed was in the recession period with the loan modification programs that had so much plausible impacts. If you are a savvy investor and trying to learn about opportunity zones, here are four things to know to get you started.

What are opportunity zones?

Opportunity zones is a federal program introduced by congress through the 2017 Tax cuts and job acts. The program aims to increase private investments in impoverished areas within the 50 states to grow the economy. Investors can gain revenue from their investments and defer their capital gains taxes, provided they re-invest into the communities. Any locality that qualifies as an opportunity zone must have been previously considered for the program by the respective state. Most communities under this program are those that did not recover after the recession. Once a community is selected for the opportunity zone program, they maintain the title for 10 years.

Reasons to invest in opportunity zones Tax deferment main reason why investors morph towards opportunity zones. However,

your investment period in these regions will determine the tax deferment benefits.

Investors can therefore enjoy a 10% tax reduction on capital gains, and retained for seven years allows them to save 15% exclusion. If investors hold the opportunity zone fund for seven years, they can save 15% on capital gain taxes. Furthermore, keeping the opportunity zone fund for a decade gives a 15% tax savings—any appreciating from the time of exchange will also be tax-free. Savvy investors are therefore reminded that the earlier they invest in opportunity zones, the sooner they will get returns from the investment.

Where to invest Currently, there exists over 8,700 identified opportunity zones across all the fifty states in the US. These areas are selected based on how much investments they need and their ability to improve the lives of the community while investors gain returns. For a community to benefit from this program, at least 20 percent of the population must fall below the US poverty rate with a regional median not surpassing 80 percent.

How to invest in the program When considering an opportunity zone investment, it would be wise for investors to put their capital gains into a qualified opportunity zone business. Investors would consider diversifying their portfolios to allow assets with lower tangible returns. Therefore, a diverse portfolio allows an investor to benefit from a lower pre-tax return, which later promises increased post-tax returns.

The IRS provides a lot of information about the requirements for a qualified opportunity fund. Before investing in an opportunity zone fund, investors should seek help from tax advisors to fulfill IRS requirements.

There are some essential details about the program to be revealed in due time—the respective bodies behind the program plan to issue extra information concerning the policies. For any investor with an extraordinary situation to be considered, their tax advisors would be of much help.