May 5, 2021

2021 Outlook for Investing in Qualified Opportunity Zones

April 20, 2021 | Colin Cosgrove | Inland Real Estate 

Since the creation of the Qualified Opportunity Zone (QOZ) program in 2017 as part the Tax Cuts and Jobs Acts, with a focus on low-income communities and census tracts across the country, these investments have raised approximately $75 billion1. Opportunity zones provide an incentive to allocate funds to help spur economic development and job creation in exchange for a temporary tax deferral and potential tax elimination. An investment in a QOZ property before the December 31, 2021 deadline may qualify for a 10 percent step-up in basis, a readjustment of the asset to current fair market value, thus reducing capital gains tax due on the original gain.

How Does Investing in a QOZ Work?

The tax benefits of investing in QOZs may be enticing for those with capital gains, however, it is important to know that realized gains must be invested into QOZ property within 180 days from the date of the sale or exchange of the appreciated asset. Investments will not be taxed on the sale of the assets until 2026 and may qualify for a 10 percent step-up in basis on the original gain if the investment occurred on or before December 31, 2021, thus decreasing the overall tax payment. After a full 10-year hold, the investment may qualify for full capital gains tax elimination.

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