Created by an act of Congress in 2017, Opportunity Zones are some of the best places for investors and businesses looking to get tax benefits while also helping economically distressed communities.

Opportunity Zones were created first and foremost to bring in new equity investments to low-income communities all over the United States, the District of Columbia, and five US territories.

The Tax Incentives of Opportunity Zones

There are three major tax incentives built into Opportunity Zones. They are the following:

Temporary Deferral

This tax incentive is when there is a temporary deferral of inclusion in taxable income for any capital gains reinvested into what is called an Opportunity Fund. This deferred gain will have to be realized either on the date when the investment in the Opportunity Zone is sold or exchanged, or December 31st, 2026, whichever comes first.

Step-up In Basis

This tax incentive is a step-up in basis for any deferred capital gains which have been reinvested in an Opportunity Fund. The basis will see an increase of 10% when the investment in the Fund is held onto for at least five years. There will be an additional 5% increase when the investment is held onto for at least seven years. This results in there being an exclusion of up to 15% of the original deferred gain from taxation.

Permanent Exclusion

This tax incentive is a permanent exclusion from taxable income of capital gains when there is a sale or exchange of an investment in an Opportunity Fund. This exclusion will be realized when an investment is kept for over 10 years. An important thing to note here is that this exclusion will only apply to gains accrued on investments made through an Opportunity Fund. You will be unable to receive a permanent exclusion for any initially deferred gains.

The Benefits to Distressed Communities

Receiving the above-mentioned tax benefits are a great incentive for investors and businesses to take advantage of any one of the nearly 9,000 Opportunity Zones within the United States. However, there is also a socially beneficial element to investing in these zones, which makes this an even more appealing opportunity.

Considering that one in eight US Census tracts is now designated as an Opportunity Zone, it means there is an incredible opportunity to be a part of rebuilding the nation’s economic greatness.

There are currently over $2 trillion in unrealized gains just sitting on the ledgers of investors and businesses. If these funds were to be invested into Opportunity Zones, over a period of 10 or more years, there would be not only an elimination of federal taxes on those gains, but also a reduction in poverty in these zones. The drastic decrease in poverty would come as a result of more jobs being created with better-paying jobs than were available prior to the injection of investment money into these communities.

Given the tax benefits, as well as the benefits to the communities designed as Opportunity Zones, you should seriously consider jumping in on this incredible and new opportunity.