The Tax Cuts and Jobs Act of 2017 (TCJA), enacted Dec. 22, 2017 and included in Internal Revenue Code §1400Z, provides tax incentives for an investment in a qualified Opportunity Zone, the goal of which is to facilitate development in targeted low-income, economically distressed communities. Opportunity Zones provide the investor with a temporary deferral of capital gains income from a prior investment (Prior Investment), which need not have been for a charitable endeavor, if all or part of the capital gain is reinvested in a Qualified Opportunity Fund (Opportunity Fund). This is intended to encourage investments used to start businesses, develop abandoned properties or provide low-income housing in the Opportunity Zone.

The legislation provides investors with an opportunity to receive (a) a potential appreciation in the Opportunity Zone Investment (OZ Investment), (b) a temporary deferral of capital gain recognition from the Prior Investment, (c) a potential step-up in the investor’s basis in the Opportunity Fund, and (d) a possible permanent exclusion of capital gain from the Opportunity Fund investment if the holding period is at least 10 years and the investor retains the investment for at least five years. To gain the benefits, an investor with a capital gain has 180 days from the sale or exchange of the Prior Investment to invest all or part of the gain from the Prior Investment in an Opportunity Fund.

Capital Gain Deferral

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