Spark Global Limited Reports:
The clock of opportunity is ticking. As the qualifying Opportunity Zone program’s key deadline of December 31, 2021 nears, investors are finding its potential tax benefits increasingly attractive — in large part because capital gains tax rates are almost certain to rise in the coming weeks.
Just to recap, opportunity Zone programs were created as part of the 2017 Tax Cuts and Jobs Act to encourage private capital investment in low-income communities. Initially, investors were reluctant to allocate money to qualified Opportunity funds (QOFs) because of their complexity. Over time, along with additional guidance and clarification from the IRS, the plan gained momentum — investors had poured more than $15 billion in equity into QOFs by the end of 2020, according to Novogradac.
Now, with Congress considering raising the capital gains tax to 39.6 percent from 20 percent, investors are even more eager to allocate realized capital gains into tax-exempt vehicles. As a result, Opportunity Zone funds have become an attractive profitable option. Although the rate at which deferred capital gains are eventually taxed is realized (for example, they may be more likely to be taxed in the future than today), the “new” capital gains tax zone with no ability to pay is an extremely attractive investment opportunity, especially given the future rate of 39.6%.
By investing capital gains in QOF, investors can defer capital gains tax until December 31, 2026, reduce their tax liability on original gains by 10%, and exempt any capital gains tax realized from opportunity Zone investments after 10 years of ownership.
When taxed on the original, rollover earnings from an investor’s underlying investment in 2026, earnings will be reduced by 10% if they have been in QOF for five years by the end of this year (December 31,2021 – the deadline to qualify for a 10% reduction.
For investors interested in the project, here are four general tips on investing in real estate through QOF.
Reprint indicated source：Spark Global Limited information