As investors sell their real estate or other assets, they are searching for tax-efficient strategies to redeploy their capital. On Oct. 19, proposed regulations and other guidance were released concerning the tax incentive for investing in “Opportunity Zones,” which could be an advantageous approach for many taxpayers.

Background

Internal Revenue Code Section 1400Z-2, which was enacted as part of the 2017 tax legislation, provides certain incentives for capital gains invested in Opportunity Zones, designated economically-distressed communities. First, capital gains invested in a Qualified Opportunity Fund (QOF) that invest in qualified opportunity zone property are deferred until the earlier of Dec. 31, 2026, or the date the investment is sold or exchanged. In addition, the basis of any investment is increased by 10 percent of the amount of gain deferred if the investment is held for five years and an additional 5 percent for any investments held for seven years.

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