In general, a “Qualified Opportunity Zone (QOZ),” or “Opportunity Zone” is a low-income area that has been designated as such by governmental authorities and approved by the United States Treasury Secretary. Over 8,000 such Opportunity Zones have been designated across the United States. Sometimes a project raising funds on Small Change is located in an opportunity zone.
Opportunity Zones are an economic development tool, designed to spur economic development and job creation in distressed communities by providing tax credit incentives to certain investors if all of the criteria for a real estate project located in an Opportunity Zone is met, including that during any 30 months following the date of acquisition, the QOZF “substantially improves” the property, which means spending at least as much to renovate or improve the property as it paid to acquire it.
The Internal Revenue Service (“IRS”) has clarified that where a QOZF purchases land and improvements, then in determining whether the QOZF has “substantially improved” the property, only the cost of the building is taken into account, not the cost of the land.
EXAMPLE: Suppose a QOZF purchases land and a building for $2 million, of which $1,500,000 million is attributable to the land cost and $500,000 to the building. The QOZF will be deemed to have “substantially improved” the property if it spends at least $500,000 to renovate the building during any period of 30 months following acquisition.
These are complicated tax credits. You can read more detailed information on the IRS Opportunity Zone FAQ page.
The potential tax benefits associated with investing in an Opportunity Zone Fund depend on the individual tax circumstances of the investor. Always consult with your personal tax advisors before investing.
