Opportunity Zone Investments
A new tax-advantaged way to invest capital gains.
U.S. investors hold roughly $6.1 trillion in unrealized capital gains, representing a significant untapped resource for economic development. Recent legislation has created new tax incentives for the investment of capital gains through investment vehicles known as Opportunity Funds.
The premise of these funds is to spur economic development in targeted areas of the United States designated as Opportunity Zones. It is projected that $100 billion dollars will be invested through Opportunity Funds, with the majority of investments projected to come through real estate.
What is an Opportunity Zone?
An Opportunity Zone is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Localities qualify as Opportunity Zones if they have been nominated for that designation by the state and that nomination has been certified by the Secretary of the U.S. Treasury.
What is an Opportunity Fund?
A qualified Opportunity Fund is an investment vehicle that is set up as either a partnership or corporation for investing in eligible property that is located in an Opportunity Zone and that utilizes the investor’s gains from a prior investment for funding the Opportunity Fund.
Why invest in an Opportunity Fund?
Deferral of Capital Gains Tax
Capital gains tax is deferred if rolled into an Opportunity Fund. The deferred tax would be recognized on December 31, 2026, unless the investment is sold sooner.
Reduction of Deferred Gain
The basis of the original investment is decreased by 10% if the investment is held for 5 years. If the investment is held for 7 years, the basis is decreased by an additional 5%. The tax on the initial deferred gain is reduced by 15% if held for 7 years.
Permanent Gain Exclusions
If the investment is held for 10 years, the basis of such property will be equal to fair market value of such investment on the date the investment is sold or exchanged.
In 2013, Investor Jones purchased 1000 shares of stock for $250,000.
In 2018, Investor Jones sold those shares. At $1,250 per share, the resulting capital gain is $1 million. Instead of paying the capital gains tax on this sale, Investor Jones rolls the gain into a Qualified Opportunity Fund.
With an assumed value of the Opportunity Zone investment in 2028 of $1.5 million, the benefits received by Investor Jones are:
- $238,000 of capital gains deferred by investing $1 million in an Opportunity Fund in 2018
- $35,700 tax savings in 2026, reflecting 15% cancellation of initial capital gain
- 100% of the gain earned on the Opportunity Fund is tax-free
* The above example assumes a 23.8% capital gains tax.
Please consult your tax accountant for futher details on the capital gains tax in your state.
HRCapital Opportunity Zone Investment Pipeline
- Rivergate Center
- 28 Acres
- Centered in Willamette Valley wine country
- M2 industrial use
- Light manufacturing; storage/warehouse
- Just outside Portland metro area
- Adjacent to transportation corridor
Frequently Asked Questions
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