Qualified Opportunity Zone Investment Funds


What Is The Qoz Incentive Program

QOZ (Qualified Opportunity Zone) Investment Fund Explained: Webinar

The QOZ incentive program encourages taxpayers to make long-term investments into qualified opportunity zones.

What are QOZs?

QOZs are regions across the country that are economically distressed. In 2018, each state nominated census tracts from their jurisdiction to be classified as QOZs, and the final QOZ designations were published by the Department of the Treasury later that year.

Taxpayers who realize capital gains from selling another investment can defer their taxable gain if they direct those gains into a QOZ by way of an investment fund known as a Qualified Opportunity Fund . QOFs exist solely to hold assets in QOZs.

Taxpayers can receive one or more of the following possible benefits for their participation in this program:

The 15% step-up incentive has already expired, and the 10% step-up incentive is about to expire, but QOZ investment can still play a role in your clients tax plans. Here are a few paths forward:

Gtis Partners Launches Opportunity Zone Fund Ii

NEW YORK, June 28, 2022 /PRNewswire/ — GTIS Partners , a global real estate investment firm with $4.7 billion in gross assets under management focused on residential and industrial investments, is pleased to announce the launch of its GTIS Qualified Opportunity Zone Fund II on July 1, 2022. The Fund is open to individual investors through many financial advisors or directly through an electronic subscription service in partnership with +SUBSCRIBE, the leading order management system for alternative product transactions. Unique in the Opportunity Zone space, the Fund is structured as a diversified REIT open to Accredited Investors with a minimum commitment of $100,000 through a securities offering registered on all major custodian platforms.

Fund II is a continuation of the strategy employed by its predecessor GTIS Qualified Opportunity Zone Fund I, which raised $630 million of investor capital and placed among the top five largest Qualified Opportunity Zone funds raised to date. Fund I has committed to 15 investments mostly focused on large regional Sunbelt markets across multifamily, single-family rental and industrial property types.

About GTIS Partners

For more information, please visit www.gtispartners.com.


For additional information on how +SUBSCRIBE is Powering Alternative Investments®, visit www.subscribeplatform.com and follow the company on and .

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Qualified Opportunity Fund Tax Benefits

Creating a qualified opportunity fund can lead to several major tax benefits/breaks. Additionally, eligible capital gains from investors, including those from real estate, business, stock, and other investments earned before January 1 of 2027, can be rolled into the QOF. The tax benefits of qualified opportunity funds include:

  • All taxes on capital gains in a QOF are deferred until either the investment is sold or realized by December 31, 2026, whichever ends up being sooner

  • All capital gains invested into the QOF for five years or more have their cost bases reduced by 10%

  • If the QOF investments are held for seven years or more, this is further reduced by 15%

  • If the QOF investments are held for 10 years or more, investors benefit from a 15% cost basis reduction for the original capital gain amount. They also pay zero capital gain tax on new investment appreciation

In other words, investors gain more tax rewards by holding QOF investments in opportunity zones for longer.

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Using Opportunity Funds To Invest In Opportunity Zones

In her research, Julie noticed that the phrase Opportunity Fund kept coming up. She soon realized that Opportunity Funds are the designated investment vehicle used to invest in Qualified Opportunity Zones.

The IRS defines Qualified Opportunity Funds as U.S. partnerships or corporations set up for investing in eligible property that is located in a Qualified Opportunity Zone.

Opportunity Zones Timeline And Impact

What Investors Need to Know About Opportunity Zones : 2018 : Articles ...

Q: What is a reasonable timeframe in which we might see the first Opportunity Fund investments deployed?A: It will take some time for the IRS to establish regulations and guidance relating to the certification of Opportunity Funds and the eligible use of proceeds. It is possible that the first Opportunity Funds will be deployed in late 2018, though we anticipate this happening in 2019.

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The Tax Incentives Outlined

There are three potential tax incentives to investing in economically distressed communities:

  • A temporary deferral: An investor can defer capital gains until 2026 by putting and keeping realized gains in an OZ Fund.

  • A reduction in capital gains: the original amount of capital gains on which an investor has to pay deferred taxes is reduced by 10% if the OZ Fund investment is held for 5 years and another 5% if held for 7 years.

  • An exemption of capital gains on appreciation: any capital gains on investments made through the OZ Fund accrue tax-free as long as the investor holds them for at least 10 years.

Could Investing In A Qualified Opportunity Zone Fund Be A Benefit

A great opportunity that the Tax Cuts and Jobs Act of 2017 brought to investors was the ability to invest in a qualified opportunity zone fund. There are many tax benefits to investing in a fund, but the most relevant is being able to defer gains to later years while not having to pay tax on the appreciation of that investment. There are qualified opportunity zones all around the valley, including Scottsdale, Mesa and Phoenix.

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How Qualified Opportunity Zone Investing Works

Bill and Linda owned a machine shop in Durham, North Carolina, for 32 years. The business had belonged to Bills father, who had long since retired.

Bill and Linda were both 62 years old and had just begun to think about retirement. Their two grown children had taken positions in Texas, and Bill and Lindas first grandbaby was soon to be born.

Selling the Business

Conversations kept coming up about selling the business and moving to Texas to be closer to the kids. The business was a grind, and Bill and Linda reasoned that being closer to the kids was a sound move as they aged, and they were certain they didnt want to miss seeing their grandbabies growing up.

As luck would have it, no sooner than Bill put the word out that they may be selling, three potential buyers expressed interest, and one buyer provided them with a letter of intent and a written purchase offer of $2 million.

Tax Impact

Bill and Linda had been working with their CPA, Ed, for 32 years and decided it was time to bring Ed into the conversation. First, Ed said he would need a couple of days to run the calculation as to what the tax bill might look like. Then, he mentioned something about basis, depreciation, net investment income tax, capital gains taxes, and other considerations he would need to examine to determine the impact of taxes upon the sale were it to go through.


The Burden of Selling a Business

In Search of a Solution

Qualified Opportunity Zones

Courtesy of Daniel Goodwin

Criticism Of Opportunity Zones

Qualified Opportunity Zone Fund Investments | Varnum LLP

Opportunity Zones and the tax benefits associated with Qualified Opportunity funds have been dealt their fair share of criticism since being introduced in 2017. Some critics suggest that Opportunity Zones and associated investments are more about tax planning for the rich than making a meaningful long-term impact in economically disadvantaged regions across the country. According to the U.S. Environmental Protection Agency , data about Opportunity Zones are clear that most of the census tracts suffer from a lack of ongoing public and private investment. As a result, Opportunity Zones may lack key infrastructure or other assets that investors seek to ensure productive returns to their investments. The differences between various Opportunity Zones could mean that only a small portion of Opportunity Zones will be the beneficiaries of investment and long-term change.

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A New Type Of Fund That Invests In Low

The prospect of investing in dilapidated inner-city neighborhoods or tumbleweed-ridden rural towns may not excite most investors. But a program embedded in the 2017 Tax Cuts and Jobs Act offers investors a tax incentive to do just that. As a result, a new type of fund that invests in low-income communities has popped up, and investors and institutions alike are starting to take notice. Youve probably heard of opportunity zones. If youre wealthy enough, you may have received a pitch to invest in an opportunity zone fund. These new investments sound appealing, but theyre not for everyone.

The new OZ funds pool money from multiple investors and invest in businesses and real estate development projects located in economically distressed communities that the federal government has designated as in need of investment. The more than 8,700 opportunity zones include parts of nearly every major American city, including Chicago and Los Angeles, as well as all of Puerto Rico and remote towns in Alaska. Investors who put money in OZ funds can defer and eventually reduce taxable capital gains, depending on how long they stay invested.

Hold for 10 years or more and a third benefit kicks in: Any gain in your investment in the fund is tax-freeas long as your outlay was made with capital gains from a prior investment. Some funds require that you hold for 10 years, but the vast majority allow you to sell at any time.

Alternative Strategies For Investing In Opportunity Zones

Individuals who want to take advantage of this type of investment without the large upfront investment might consider an Opportunity Zone REIT instead. The minimum investment in an Opportunity Zone REIT is simply the price of one share of stock.

Some of the benefits of investing in an Opportunity Zone REIT rather than directly in an Opportunity Zone fund include:

  • Your investment may be spread out across multiple Opportunity Zones, which can diversify your portfolio and reduce your risk.
  • Opportunity Zone REITs may be liquid, so unlike with traditional Opportunity Zone funds, investors can pull their money out at any time. This may not be the case with all Opportunity Zone REITs, so its crucial to understand the restrictions before you invest. Its important to note that withdrawing your investment early wouldnt allow you to take advantage of the tax benefits of this type of investment, which is the primary purpose many people turn to them.

Unlike Opportunity Zone funds, some Opportunity Zone REITs may be publicly traded companies, meaning they have more transparency.

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Why Invest In Qualified Opportunity Funds

Say youve sold an asset and have a large capital gains tax liability on your hands. Or youd like to offload an investment, but the capital gains tax consequences have kept you from doing so. By rolling those capital gains into a qualified opportunity fund, you can defer and reduce your capital gains tax liability, diversify your portfolio and make a positive impact.

There are three main tax benefits of investing in qualified opportunity funds, and in particular, in investing in these funds in 2021:

  • You can defer paying taxes on your original capital gain until the tax year 2026, which means you won’t actually pay taxes until you file your 2026 tax return in 2027.

  • If you invest by the end of 2021, you’ll be able to hold your investment for five years, which allows you to qualify for a 10% reduction in the original deferred capital gain amount due in 2027.

  • If you hold your investment for at least 10 years, you’ll owe no capital gains on any additional appreciation beyond what you paid in 2027. When investing in qualified opportunity funds, the longer you hold onto your investment, the greater your overall tax benefit.

  • Its very substantial. The net benefit to investors or the impact is between 40% to 50% higher after-tax returns than a non-opportunity zone investment, says Jill Homan, president of Javelin 19 Investments, a Washington, D.C.-based real estate and investment advisory firm focused on qualified opportunity zones.

    Tax Deferral And Savings

    (Almost) Everything You Need To Know About Qualified Opportunity Zone ...

    A Qualified Opportunity Fund investment provides potential tax savings in three ways:

    Tax deferral through 2026 – A taxpayer may elect to defer the tax on some or all of a capital gain if, during the 180-day period beginning at the date of sale/exchange, they invest in a Qualified Opportunity Fund. Any taxable gain invested in a Qualified Opportunity Fund is not recognized until December 31, 2026 , or until the interest in the fund is sold or exchanged, whichever occurs first. In addition, the deferred gain can be further reduced as described below.

    Step-up in tax basis of 10% or up to 15% of deferred gains – A taxpayer who defers gains through a Qualified Opportunity Fund investment receives a 10% step-up in tax basis after five years and an additional 5% step-up after seven years. Note that to take full advantage of the 15% step-up in tax basis, the taxpayer must have invested by December 31, 2019. When the tax is triggered at the end of 2026, the taxpayer will have held the investment in the fund for seven years, thereby qualifying for the 15% increase in tax basis.

    No tax on appreciation – Remaining in the Qualified Opportunity Fund for at least 10 years results in the cost basis of the property being equal to the fair market value on the date of sale/exchange.

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    What Is An Opportunity Zone

    An Opportunity Zone is a community nominated by the state and certified by the Treasury Department as qualifying for this program. The Treasury Department has certified zones in all 50 states Washington, D.C. and U.S. territories.

    There are approximately 8,700 Opportunity Zones nationwide. A list can be found at the U.S. Department of Housing and Urban Development.

    Where To Find Opportunity Zones

    As mentioned, opportunity zones exist throughout the entire country, including Washington DC. Investors can check the list at the US Department of the Treasury website, which regularly updates the opportunity zones collection.

    All opportunity zones are identified by their state, home county, and the census tract number used to originally identify them. Investors can also use the US Census Bureaus Geocoder to determine which census tract number matches a specific address. For instance, Alabamas Autauga County is designated as a low-income community. It has a census tract number of 1001020700.

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    Tax Advantages Of Qualified Opportunity Funds

    Beyond the ability to defer taxation of previous gains, the longer a participant holds their qualified opportunity fund investment, the smaller their tax burden may be.

    • If held for longer than five years, then investors receive a 10% exclusion of the deferred gain on their investment.
    • If an investor holds for more than seven years, then they receive a 15% exclusion.
    • After 10 years, the investor does not owe federal income taxes on the funds appreciation by the date of sale.

    Given that opportunity funds are relatively new on the scene, and that the Trump administration that facilitated them is no longer in office, specific rules and regulations for investment in, and taxation of, qualified opportunity funds could be subject to change. Investors interested in participating should consult investment and tax professionals.

    What Is A Qualified Opportunity Zone Investment Fund

    How to create a qualified opportunity zone fund | Qualified OZ Funds for Capital Gains explained

    The Tax Cuts and Jobs Act of 2017 created QOZs to provide potentially significant tax benefits to investors who re-invest capital gains into long-term investments into communities designated for economic development.

    This solution is useful for accredited investors who have substantial capital gains, a desire to realize them in a tax-efficient manner, and a commitment to socially-impactful investments.

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    Capital Gains Tax Reduction

    With 1031 exchanges, capital gains are reduced through a step-up in basis only upon death. With Qualified Opportunity Funds, the investor receives basis step-ups of 10 percent after 5 years and an additional 5 percent after 7 years, to account for a total available capital gains tax reduction of 15 percent. Note: the ability to achieve a 15 percent basis step-up expired after December 31, 2019.

    The Federal Opportunity Zones Program Allows Investors To Defer Or Reduce Capital Gains Taxes

    Initiated as a result of the Tax Cuts and Jobs Act of 2017, the Opportunity Zones program offers some of the strongest federal tax incentives of any government program in recent history. By investing in a Qualified Opportunity Zone, one of 8,700 census tracts across the United States that have been certified by the U.S. Treasury Department as extremely economically disadvantaged, investors can receive incredible tax benefits, including being permitted to defer their capital gains taxes until December 31st, 2026. They will not typically need to pay these taxes until April 2027.

    In addition:

    • Opportunity Zone investments held for at least 5 years before December 31, 2026 will experience a 10% reduction in their capital gains tax basis.

    • Investments held for at least 7 years before the same date will experience an additional 5% reduction in their capital gains tax basis, for an overall 15% reduction.

    These benefits apply equally to short-term and long-term capital gains, as well as 1231 gains . In addition, investors pay no taxes on capital gains acquired after their money has been invested, provided they keep the money in for at least 10 years. Investors can keep their funds invested until 2047, giving them nearly three decades during which their funds can increase without any additional capital gains tax burden.

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    Estate Planning With Qofs

    If a QOF is gifted to a charity or an individual other than the taxpayer’s spouse, this gift would be considered an inclusion event and may trigger the inclusion of the deferred capital gains in the taxpayer’s taxable income in the year the gift is made. If a QOF is gifted to a grantor trust or distributed to a taxpayers beneficiaries upon death, it should not be considered an inclusion event. (For more information on grantor trusts, please see Trusts and Taxes: Exploring the Federal Income Tax Implications of Trust Strategies.

    Further, if a QOF is gifted to a grantor trust or distributed upon death prior to December 31, 2026, there will be no step-up in cost basis in the QOF. Although there is no step-up in cost basis, the taxpayer’s holding period in the QOF will tack on or carry over to the beneficiary of the QOF. However, this may present an income tax issue for the beneficiary if the beneficiary does not hold sufficient liquid assets to cover the impending deferred capital gains tax liability associated with the QOF.

    Example 5In April 2020, Tiffany’s cost basis in the QOF is considered to be zero even though she contributed $5 million. In 2021, Tiffany dies and leaves her interest in the QOF to Diana, her 25-year-old daughter.

    If a QOF owner intends to distribute a QOF upon death, the owner may want to consider providing additional funds to the recipient to cover the potential income tax liability.


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