Plenty of investment schemes abound in the market. Which one deserves your time and attention the most? Which one fits your budget and goals? If you’ve been checking out the opportunity zone projects, then here are a few essential things to help you gain a better understanding of the venture and give you enough pointers to help you decide if this is the investment project you’ll want to take on.
What is TCJA?
The TCJA or Tax Cuts and Jobs Act is known for creating opportunity zones. It is an attempt to move billions of dollars into economically distressed communities. The most common question that comes up, then, is whether this program will be worth it or not. Will it add value to the community or extract from them?
What are Opportunity Zones?
These are low-income communities that can improve with the infusion of money that will come from new investments. Under certain conditions, buying these properties can result in investments that qualify for preferential tax treatment. OZ plans are already in place for all 50 states in the country.
How do Opportunity Zones work?
Each state nominates low-income areas—blocks of them—by census tract. The Secretary of the U.S. Treasury then certifies the tracts by delegating authority to the Internal Revenue Service (IRS). Investors can file a Form 8896 through the IRS to generate a Qualified Opportunity Fund. The funds are structured as a partnership or corporation just so they could invest in an OZ census track. The investments can happen in two ways—through direct investment in an OZ property or through equity. The fund, though, must hold at least 90 percent of the assets in that qualifying OZ area for it to be eligible for the tax benefits.
How do you earn a profit?
To make a profit, a taxpayer must put up an asset and generate a capital gain. The taxpayer then puts the capital gain into a Qualified OZ fund. When that happens, the taxes you owe to the government get delayed and reduced. Ultimately, though, if you hold the property for ten years, you won’t have to pay even a single cent in capital gains tax on the new investment in the fund. That’s the real winner. Hold the investment long enough and you pay no tax on your returns. You could end up with as much as a 30 to 40 percent increase in your annual return. That’s not a small tax benefit. If the conditions work for you, you can receive massive tax benefits.
How do you know which assets to pick?
Work with pros. Find someone with the insight and experience to help you identify and maximize the benefits that opportunity zones bring. A better understanding of how the program can help you and how plenty of communities across the U.S. also benefit from them will make it easier for you to decide whether this is the right step for you, investment-wise.
Grow your funds by investing your money. Find out how opportunity zones can work for you.
