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Opportunity Zones: Opportunities for Whom?

December 12, 2019

On December 22, 2017, Congress enacted the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The law created a new incentive to encourage long-term investment in the nation’s low-income areas. If a taxpayer invests eligible capital in certain distressed communities, as designated by the federal government, they can then defer the recognition of capital gains for several years.

This incentive is designed to spur economic development and job creation in these particular undercapitalized areas of the country. Since the Tax Act was signed into law, the US Treasury Department has designated over 8,7001 such areas, known as “opportunity zones.”

The vehicle through which a taxpayer can invest in an opportunity zone is called a qualified opportunity fund. Qualified opportunity funds must be organized (as a corporation or a partnership) for the purpose of investing in qualified opportunity zone property.

A corporation, partnership, or an individual with capital gains can invest in an opportunity fund. This can be accomplished either by transferring an existing asset into a fund, or by transferring cash in an amount equal to the gain arising from a sale or exchange within the 180-day period beginning on the date of the sale or exchange.

Reprinted with permission from Nassau Lawyer, Vol. 69, No. 4, A Long Island Business News publication. 

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