The Opportunity Zone Program included in the federal tax-reform law passed last year is designed to spur investment in low-income areas. Done properly, investments in designated areas, known as Opportunity Zones, allow both gain deferral and gain exclusion. Imagine a supercharged like-kind exchange, where you can defer income without a like-kind requirement, take cash off the table between investments and even exclude gain upon exit.
How the program works
Proposed Treasury regulations issued last month, which explain the new program with flexible rules, have stirred up interest in investing in the 8,700 designated Opportunity Zones, including 320 in Ohio.
While the Opportunity Zone Program is quite complex, the path toward its tax benefits can be summed up as follows:
- The investor must realize eligible capital gain income, meaning almost any capital gain income subject to a few exceptions;
- Within 180 days, the investor must reinvest the capital gain in an "Opportunity Fund"; and
- The Opportunity Fund must invest more than 90% of its assets in Qualified Opportunity Zone Property ("qualified property") within an Opportunity Zone, either through operating a Qualified Opportunity Zone Business ("qualified business") itself or investing in a subsidiary that operates a qualified business.