Providing preferential tax incentives to investors
The Investing in Opportunity Act offers tax incentives to help appeal to long-term investors to parts of the country struggling with high poverty, job and business growth. Reviewing the Tax Cuts and Jobs Act of 2017, specifically the section on Opportunity Zones and Qualified Opportunity Funds — we are able to best help guide investors and those who may be creating a Qualified Opportunity Fund towards the best options for their capital gains.
Why invest in opportunity zones?
Temporary Deferral of your Capital Gains Tax until 2026 — while simultaneously gaining a return on your investment.
A step-up in basis for capital gains reinvested in an Opportunity Fund. The basis is increased by 10% if the investment in the Opportunity Fund is held by the taxpayer for at least 5 years and by an additional 5% if held for at least 7 years, thereby excluding up to 15% of the original gain from taxation. investment in an Opportunity Fund.
A permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in an Opportunity Fund if the investment is held for at least 10 years.
Read more about the opportunity zone program on the IRS website.
The Investing in Opportunity Act’s genesis in tech.
Pushed by Napster founder and tech mogul, Sean Parker in collaboration with Senator Tim Scott, the tax bill is drawing significant appeal from venture capitalists and tech one-percenters alike. We’ve seen an influx of firms targeting tech startups in the designated Qualified Opportunity Zones. We are proud to collaborate with those working within an Opportunity Zone and their investors.
We cannot discredit the fact that Sean Parker and his Economic Innovation Group was the leading factor behind how this tax reform was created. The tech one-percenters did not have real estate in mind when creating this tax act. We need to continuously be referencing the other ways that opportunities that may qualify as assets may be interpreted, especially in terms of startups, blockchain, or other emerging technologies may be concerned.
NOT AN ICO 2.0 // LONG TERM GROWTH FOR FAST PACED TECH
Two main concerns immediately arise when we’re discussing the Investing In Opportunity Act — first, the skepticism from ICO’s still exists widely in the startup sector. Investors have been burned in the past by questionable ethics and sketchy investments. But that comes with any deal, questionable ethics and sketchy investments exist in any industry.
CREATING A QUALIFIED Opportunity FUND
A Qualified Opportunity Fund (QOF) is an investment vehicle to help fund assets within the QOZ. Whether funded by individuals, partnerships or corporations, they are the people receiving the tax breaks. In order to create a QOF, 90% of assets that you are invested in must be within a QOZ. You must complete and file IRS Form 8996 Annually (Currently in draft form), and the group operating the fund must be a Corporation or Partnership.
INVESTING IN A QUALIFIED OPPORTUNITY ZONE
A Qualified Opportunity Zone (QOZ) is an area determined by a collaboration of the state and federal government with the intention to spur economic development and create jobs in distressed communities. To receive the tax benefits, individuals must be investing in the QOZ via a QOF Organizations can further incentivize investors, and use this to better improve communities through layering state and federal tax initiatives. Depending on the state, incentives can be related to workforce development, education, or anti-poverty initiatives.