Can We Buy a House in an Opportunity Zone and Call It an Investment?

Can We Buy a House in an Opportunity Zone and Call It an Investment?

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SUMMARY: since the launch of Qualified Opportunity zones, investors have been pouring their capital gains into any Qualified opportunity Fund they can get. The investment opportunity is wide with a variety of projects.

As the Opportunity Zone investment continues to grow, some projects are gaining popularity in the sector. The main one is single-family housing. Opportunity Zone offers some tax advantages to investors who are interested in them. However, before you think of putting your money into the opportunity zone real estate investment, you must understand the projects you can invest in and how the returns and taxes work. A popular question people ask is if you can buy a house in an Opportunity zone and call it an investment. Find out the answer below.

What is an Investment?

Before answering the question above, it is crucial to understand what an investment is.

An investment is an asset acquired with the intention to grow and save money. The money you get from an investment is called a return. You can use it to cater for other objectives like fulfilling certain goals and obligations, saving for retirement, catering for income shortages, and lots of other things. Once you understand what investment means, you can choose the right investments to meet your goals and make the right choices.

Can you buy a house in an Opportunity Zone and call it an Investment?

Yes, you can. Opportunity Zones real estate investment is not limited to houses; you can buy anything and call it an investment. However, to ensure you enjoy the tax deferral

benefits, there are certain requirements that the house you buy must meet. Once you buy the house, you can position it as a rental that will give you an income or use it for business activities.

If you buy the house and move in to stay, you will not get any returns immediately, but you can decide to improve it later and resell or rent it out. Another way, you can buy the house in opportunity Zone, improve it immediately, and then hold it as long as you can.

This way, you will get the best returns. However, it is crucial to do due diligence to ensure the house is the best investment strategy or project for your lifestyle and the property.

Requirements for Investing in a House in Opportunity Zone Long-term Property Hold Maybe house flipping is a 'thing' with the other real estate investment opportunities, but it is not with qualified Opportunity Zones. The program's main purpose is to improve economic growth in marginalized communities; they do not need immediate profit-taking.

That is why you will notice that the program has a deadline of 31st December 2026.

Qualified Opportunity set-up Before investing in any QOZ property, you must first certify as a QOF, which is done in two ways. First, you fill an IRS form 8996 with your tax deferral return. Second, you must ensure that at least 90% of the assets you buy are in the QOZ. Substantial Improvement This is the economic improvements initiative. This means, after investing in a house, you only have 30 months after closing to double your property’s adjusted basis. This is the land. For instance, if the buying price is $250,000 and the land’s value is $50,000, you will have only 30 months from closing to invest an additional $200,000 to make the necessary improvements to the house.

Like any other real estate investment, QOZ has material risks that come with it.

Remember, your past performance is not a guarantee for your future results. The cash flow, appreciation, and returns may not be the same. You should first consult with your tax professional to give you the right guidance.