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?
Federal tax reform through the Tax Cuts and Jobs Act last year attracted attention by creating the new Opportunity Zone program to benefit low-income, underserved areas throughout the country. The way it works is investors may reinvest sales proceeds from the sale of an eligible business or property into an Opportunity Fund. The fund is an investment vehicle organized as a corporation or partnership that must hold at least 90 percent of its assets as qualified opportunity zone property. Such property includes qualified opportunity zone stock, qualified opportunity zone partnership interests, and qualified opportunity zone business property.
What are the benefits of opportunity zones?
The benefits available to investors include deferring, reducing, or totally eliminating their tax on capital gains generated through their investment in the Opportunity Zone. A taxpayer may defer any tax owed on such capital gains until Dec. 31, 2026, or at an earlier time that the investor disposes of their investment. In addition, the investor will benefit from a step up in their basis of their investment property depending on how long they hold their investment. The basis increases 10 percent after 5 years of investment, an additional 5 percent after 7 years, and the basis equals the fair market value of the property after 10 years. Thus, a taxpayer holding their investment in an Opportunity Zone for 10 years may avoid capital gains tax altogether.