Lifecycle of an Opportunity Zone Investment
1. You have 180 days from the date of your stock sale to invest the capital gains into a Qualified Opportunity Fund (QOF). This is a fund that invests in businesses or real estate within an Opportunity Zone. | |
2. By rolling over your capital gains into a QOF, you can defer paying capital gains tax on that profit until April of 2027. | |
| 2A. You can reduce that tax liability if you sell stocks in 2026 that you have a loss on. 2B. You may reduce your future tax liability through depreciation losses that you get from the OZ real estate investment. | |
2C. There is pending federal legislation which would reduce the tax liability by 10-15% for investments made in 2023. | |
3. By keeping your investment in the OZ tax structure for 10+ years you'll get a "stepped-up basis" when you sell. This means that any appreciation in the value of your investment will be tax-free when you sell it and you will not have to recapture the depreciation losses that you took during the holding period. | |
Let's say you just sold some stocks and made a nice profit. You're thinking about investing that money in an Opportunity Zone (OZ) to take advantage of the tax benefits.
First, you need to understand that an Opportunity Zone is a low-income census tract designated by the government to encourage long-term investment and economic growth. The idea is to incentivize people like yourself to invest in these areas, which in turn can help revitalize the community and create jobs.
Now, here's where it gets interesting for you. When you sell stocks and make a profit, you usually have to pay capital gains tax on that profit. But if you invest those gains into an Opportunity Zone, you can defer and even reduce your tax bill.
These tax benefits typically increase the tax adjusted IRR by about 5% on a 10 year hold.
So, by investing in an Opportunity Zone, you can potentially save a lot on taxes while also making a positive impact on a struggling community.
Just make sure to consult with a financial advisor or tax professional to ensure you're making the best decision for your unique situation.