A Look at Opportunity Funds
November 17, 2018
An opportunity fund is another type of investment where the money is pooled together into a fund. This investment pool is then invested in qualified opportunity zones. An opportunity zone is an are on a census track where there are low-income communities that are US Department of Treasury certified and nominated by state governors. This investment opportunity is part of the Opportunity Zone program, a program created to help develop neighborhoods that are economically distressed by bringing in private investors from across the country.
At least ninety percent of the assets in an opportunity fund must be invested into businesses or properties in the opportunity zone by law. This program was designed to help improve neighborhoods so the ability to invest in certain forms of real estate in those zones is limited. In fact, to invest in real estate in an opportunity zone, you must invest in redeveloping previously unused buildings or in the construction of new buildings. Within thirty months of buying a property in through the opportunity fund, more money must be used in improving the property than the amount of the investment. The money can be used for anything from tree removal to building new walls.
There are numerous capital gain tax incentives for investors with opportunity funds. You can defer taxes on your investment until the end of 2026. If you hold the investment for five years or more before that time, you will also receive a ten percent reduction in your tax liability on the deferred capital gains. If you have had it more than seven years by that time, the amount goes up to fifteen percent reduction saved. If your investment in the opportunity fund is held for ten or more years by the end of 2026, all capital gains earned from that investment will be excluded permanently.
Of course, this is a long-term investment, but it is ideal for any investor wanting to maximize their capital gain tax savings. You must understand that your investment will be tied up for years, though.