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QUALIFIED OPPORTUNITY ZONES 2.0
POTENTIAL TAX BENEFITS
AVAILABLE TO A QOZ INVESTOR
Qualified Opportunity Zone legislation offers QOZ investors a powerful potential combination of tax incentives, including deferral of capital gains taxes, a step-up in basis and tax-free growth. As part of the OBBBA, beginning on January 1, 2027, changes to the Opportunity Zone investment structure will take effect. Key enhancements include updates to the deferral window, adjustments to the time period for when basis step-ups are applied, and the amount of time investors must hold their investments to qualify for tax-free growth. What did not change is the ability for an investor to sell any asset (not limited to a real estate asset) that generates a capital gain and invest an amount equal to that gain (or a lesser amount} in a QOZ within 180 days.
ROLLING FIVE-YEAR DEFERRAL
investors in the QOZ 2.0 program can defer capital gains for up to five years based on their date of investment
TAX BASIS STEP-UP
of that initial capital gain by 10 percent at the expiration of the five-year deferral period
TAX FREE GROWTH
investments held over 10 years can potentially grow tax-free and avoid depreciation recapture for up to 30 years from the anniversary date of the investment
QOZ INVESTMENT TIMELINE
KEY ELEMENTS OF TAX BENEFITS:
HELD FOR 5 YEARS
DAY 0
-Asset sale - generating capital gain
-Investment in QOZ 2.0
-Deferred zero basis capital gain stepped up 10%
YEAR 5
DAY 1 - 180
HELD FOR 10 YEARS
-Capital gains taxes due on the portion of the deferred capital gain not previously stepped up
-Forgiveness of capital gains taxes and depreciation recapture for up to 30 years from the anniversary of QOZ 2.0 investment
YEAR 10
-Basis in QOZ investment stepped up to fair market value
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