The state of Ohio recently designated 44 “Opportunity Zones” in underprivileged areas of Columbus, Ohio, where investors may obtain federal income tax benefits for deploying their investment resources. Overall, there are now 320 qualified Opportunity Zones in Ohio. These areas are identified through interactive maps available on the Ohio Development Services Agency website here.
What are opportunity zones?
The Opportunity Fund is an investment vehicle organized as a corporation or partnership that must be funded with capital gain proceeds, invest in designated Opportunity Zones, and satisfy other requirements. If the Fund invests in qualified opportunity zone property, 90% of its assets must be qualified opportunity zone property. Under proposed regulations, Fund investments in an operating business require 70% of the business’s assets to be qualified opportunity zone property to qualify. “Qualified opportunity zone property” includes qualified opportunity zone stock or partnership interests, as well as qualified opportunity zone business property.
What are the benefits of opportunity zones?
The benefits available to investors include deferring and reducing the reinvested capital gain income (the “initial gain”) and potentially eliminating any capital gain income generated through their investment in the Opportunity Fund. With respect to the initial capital gain income, an investor may defer any tax owed on such capital gains until December 31, 2026, or at an earlier time that the investor disposes of their investment. In addition, the investor may exclude 10% of their initial gain after 5 years of investment and an additional 5% on the initial gain after 7 years. If the investor holds their interest in the Opportunity Fund for ten years, then the appreciation on that investment is generally exempt from federal income tax.