Written By: Grady McMichen
Oct 29, 2024
Opportunity Zones were introduced in the Tax Cuts and Jobs Act of 2017, aiming to encourage economic investment in distressed areas. Opportunity Zones allowed investors to defer capital gains by investing in a Qualified Opportunity Fund, with funds used from a prior investment. The deferred capital gains are postponed until December 31, 2026, or whenever the investment is sold, whichever comes first. However, if the investment is held for at least five years, the basis of the original investment increases by 10%, and increases by another 5% after 7 years. After holding the investment for ten years, any additional gains beyond the deferred amount can be excluded.
Despite the upcoming December 31, 2026, deadline for tax deferral, there is still significant value in OZ investments due to the long-term benefits, particularly the 10-year hold which offers substantial tax advantages. As 2024 is ending, many taxpayers may have seen increased returns in the market resulting in higher-than-expected income and deferring additional capital gains at the least until 2027 could have significant benefits.
Senator Cory Booker introduced The Opportunity Zones Transparency, Extension, and Improvement Act in September 2023 which would extend the deferral date to the end of 2028. The proposed act would also include more robust reporting requirement. Implementing this bill would further enhance the attractiveness of investing in an opportunity zone.
While the short-term deferral benefit is nearing its end, the long-term benefits of OZ investments continue to make them an attractive option for investors.
