QUALIFIED OPPORTUNITY ZONE FUNDS (QOZFS): DRIVING INVESTMENTS INTO UNDERSERVED COMMUNITIES
• Purpose & Mechanism Investors can defer recognized capital gains by reinvesting them into a Qualified Opportunity Fund (QOF), which invests in designated low- income neighborhoods. • Benefits Over Time º A 10% basis step-up after five years reduces the deferred gain amount. º Holding for 10 years or more allows the investor to step up the basis to fair market value and permanently exclude appreciation from taxation (IRS). • Economic Intent Intended as a catalyst for community revitalization, QOZs are explicitly designed to spur economic development and job creation in underserved areas (IRS). • Act Enhancements The Act solidifies the program by: º Making it permanent º Introduces rolling five-year deferrals º Allows a 10% basis step-up (already in place) º Establishes Rural Opportunity Zone Funds with a generous 30% basis step-up and relaxed improvement criteria. º Preserves the 10–30 year tax-free appreciation benefit as a long-term incentive. The Opportunity Zone program, created under the Tax Cuts and Jobs Act (TCJA), encourages private investment into economically distressed areas in exchange for capital gains tax benefits.
These enhancements aim to attract more patient capital while balancing urban and rural investment needs.
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