OPPORTUNITY ZONE 101
OPPORTUNITY ZONES AND QUALIFIED OPPORTUNITY ZONE BUSINESSES
A new community development program was created under the Tax Cuts and Jobs Act passed by the U.S. Congress on December 22, 2017. Added to the tax code and designated to be an Economic Development Tool to encourage long-term investments in urban, and rural communities nationwide.
An investor who has triggered a capital gain by selling an asset like stocks or real estate can receive special tax benefits if they roll that gain into an Opportunity Fund or Qualified Opportunity Zone Busines within 180 days. There are three primary advantages to rolling over your capital gains:
the payment of your capital gains
until Dec 31, 2026.
the tax you owe
by up to 15% after 7 years.
3. PAY ZERO
tax on gains from
the Opportunity Fund.
The tax rate on most net capital gain is no higher than 15% for most individuals. Some or all net capital gain may be taxed at 0% if your taxable income is less than $78,750.
A capital gain rate of 15% applies if your taxable income is $78,750 or more but less than $434,550 for single; $488,850 for married filing jointly or qualifying widow(er); $461,700 for head o household, or $244,425 for married filing separately.
However, a net capital gain tax rate of 20% applies to the extent that your taxable income exceeds the threshold set for the 15% capital gain rate.
- The taxable part of a gain from selling section 1202 qualified small business stock is taxed at a maximum 20% rate.
- Net capital gains from selling collectibles (such as coins or art) are taxed at a maximum rate 28% rate.
- The portion of any unrecaptured section 1250 gain from selling section 1250 real property is taxed at a maximum rate 25% rate.
Note: Net short-term capital gains are subject to taxation as ordinary income at graduated tax rates.
Opportunity Zones are census tracts that qualify as “low-income communities” under the tax code and which state governors have designated as beneficiaries of the Opportunity Zone program. There are over 8,700 Opportunity Zones scattered throughout all 50 states, the District of Columbia, and U.S. territories. Investors must invest through a Federal IRS Tax approved Qualified Fund or Qualified Business.
A Qualified Fund is an investment vehicle that has at least 90% of its assets as qualified opportunity zone property (“Qualified Property”). Qualified Property is a tangible property located in an Opportunity Zone and/or equity interests in a U.S. company that is engaged in a qualified opportunity zone business (“Qualified Business”). To be engaged in a Qualified Business, in addition to other requirements, at minimum (i) 70% of a company’s tangible property must be used in an Opportunity Zone, (ii) 40% of a company’s intangible property must be used in the active conduct of a business in an Opportunity Zone, and (iii) 50% of a company’s gross income must be derived from the active conduct of a business in the Opportunity Zone.
A Qualified Opportunity Zone Business must earn at least 50% of its gross income from business activities within a Qualified Opportunity Zone. It must do so for each taxable year. The regulations provide four safe harbors that a business may use to meet this test. These safe harbors are the:
• Hours-of-services-received test
• Amounts-paid-for-services test
• Necessary-tangible-property-and-business-functions test
• Facts and circumstance test
Yes, all capital gains earned within a Qualified Fund over 10 years would be exempt from any capital gains tax. The Opportunity Zone mandate is to encourage long term investment capital in order to stimulate and impact underserved markets and emerging businesses operating in these targeted markets.
Both Opportunity Zone investments and 1031 exchanges provide significant federal tax benefits and impose a 180-day limitation on the time taxpayers have to complete their tax deferral investment.
1. CAPITAL GAINS DEFERRAL
Investors can defer paying taxes on the capital gains they invest into a Qualified Fund until they sell their interest in the Qualified Fund or December 31, 2026, whichever is earlier.
2. CAPITAL GAINS REDUCTION
Investors who hold their interest in a Qualified Fund for five years can eliminate 10% of the capital gains that they invested from tax, and investors who hold their interest in a Qualified Fund for seven years can eliminate an additional 5% of the capital gains from tax.
3. CAPITAL GAINS EXEMPTION
Investors who maintain their investment in the Qualified Fund for at least 10 years do not have to pay tax on the appreciation of their interest in the Qualified Fund when they sell that interest. Importantly, these tax benefits are limited to investments of capital gains (e.g., proceeds from the sale of a business, real estate, or stock above the cost basis) invested in Qualified Fund.
3 SIMPLE STEPS
Submit your contact information and investment details below.
2. VERACOR INTERNAL REVIEW
Based upon your investor criteria, the Veracor Management Team will perform an internal vetting process.
3. VERACOR MANAGEMENT WILL CONTACT YOU TO ARRANGE FUND PLACEMENT
A member of the Veracor Management Team will personally reach out to qualified investment candidates to discuss
specific details and next steps.