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Take a look below to gain an understanding of opportunity zones.
What Is An Opportunity Zone?
An Opportunity Zone (OZ) is a low-income census tract that has been designated for the OZ program in order to attract additional investment and stimulate the local economy – Opportunity Zones exist in every state, there are more than 50,000 zones collectively across the continental United States.
The OZ tax incentive was signed into law as part of the Tax Cuts and Jobs Act (TCJA) of 2017, and most recently was made a permanent part of the Tax Code through the One Big Beautiful Bill Act (OBBBA) of 2025.
What are the benefits of investing in an Opportunity Zone?
Any taxpayer can take advantage of the OZ tax program if they have a capital gain from the sale or exchange of an asset. The program requires the taxpayer to invest their capital gain proceeds into a Qualified Opportunity Fund ("QOF"), in exchange for an equity interest, within 180 days of realization, to become a qualifying investment. When a qualifying investment has been made, the federal tax on that capital gain is deferred until tax year 2026 (five-year deferral under OZ 2.0 if the investment is made in 2027 or later). In addition, if the taxpayer holds their equity interest in a QOF for 10 years, they can realize the appreciation on the sale of that equity interest completely tax-free. This benefit also extends to any pass-through gains realized after 10 years from the sale of assets held by the QOF or any of its underlying passthrough investments.
All capital gains are eligible, but they must be capital gains. Listed below are a few examples:
Gains from stock sales or crypto coin sales or commodities
Gains from sale of a personal residence
Gains from the sale of a business
Gains from sale of business property
Gains from sale of real estate
Example Investment
You sell your personal residence and have a $1 million dollar gain. You can exclude up to $500,000 under Section 125 rules and then you can contribute the other $500,000 into a QOF.
If you invest that money properly, meet the rules, and hold the investment for 10 years, the full appreciation on your exit is tax-free.
Assume your OZ investment is worth $2M after 10 years:
The full appreciation of $1.5M is completely tax free upon your exit/sale at the 10-year anniversary. Further, you can maintain your investment for up to 30 years and still get the tax-free benefit.
Assuming you hold the investment for 20 years, it appreciates to $4 million: all that appreciation is still completely tax free!
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