Tax Strategies - Opportunity Zones

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The Opportunity Zone (OZ) program introduced multiple tax benefit  incentives when capital gains of any character are invested in specially  designated private equity investment funds called Qualified OZ Funds  within 180 days after such gains are realized.  The first tax benefit that OZ investors will realize is the deferral  of tax on their invested capital gains for as long as such gains are  invested in the OZ Fund with a maximum deferral period of the earlier of  7 years or until December 31, 2026.

The second tax benefit that OZ investors can realize is the reduction of  their tax on the invested capital gains by 10% if such gains remain  invested and held in the OZ Fund for 5 years or 15% after 7 years. These  reduced capital gains taxes have a limited time horizon of the OZ  program as each reduction must be earned before December 31, 2026.

The effect is that in exchange for investing through the  OZ system the federal government provides the investor a loan of up to 7  years of the tax that would have been due on the original capital gains  and pays you, the Borrower, an interest rate of up to 15% – a negative  interest rate.

The final tax benefit OZ investors can realize is the ability to sell  their investment in the OZ Fund completely tax free after holding such  investment for 10 years or more. Any OZ investor who invests in an OZ  fund prior to January 1, 2027 is eligible to earn this tax-free upside.  This tax forgiveness carries with it the most potential for capital  growth out of any benefit of the OZ program. It is the most powerful of  the OZ benefits and applies whenever the investor invests all the way  through 2026.

OZ investing can be much like 401(k) or IRA investing  where the investor’s capital grows and the growth comes out tax free,  but without the constraints or taxation of those retirement programs  upon exit.