Federal Opportunity Zones

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Federal Opportunity Zones

The Federal Qualified Opportunity Zone distinction was created by The Tax Cuts and Jobs Act to spur economic growth in low-income communities by allowing investors to defer federal taxes by taking capital gains from other investments and investing in these designated areas. The U.S. Department of the Treasury and the Internal Revenue Service (IRS) have now designated more than 8,700 Federal Opportunity Zones in 50 States, the District of Columbia, and five U.S. territories, including 260 census tracts in the State of Georgia.

A Federal Opportunity Zone is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment.  Localities qualify as Federal Opportunity Zones if they have been nominated for that designation by the state and that nomination has been certified by the Secretary of the U.S. Treasury via his delegation of authority to the Internal Revenue Service.  Designated Federal Opportunity Zones may not be added or altered at this time.

A Federal Qualified Opportunity Fund is an investment vehicle that is set up as either a partnership or corporation for investing in eligible property that is located in a Federal Opportunity Zone and that utilizes the investor’s gains from a prior investment for funding the Federal Opportunity Fund.

The following incentives are offered to investors for putting their capital to work in these qualified opportunity zones:

1.      Temporary, capital gain tax deferral:

·         The period of capital gain tax deferral ends upon 12/31/2026 or an earlier sale

2.      A step-up in basis:

·         Investment held for 5 years – Basis increased by 10% of deferred gain (90% taxed)

·         Investment held for 7 years – basis increased by another 5% of deferred gain (85% taxed)

3.      Forgiveness of additional gains

·         Investment held for 10 years – Basis equal to fair market value; forgiveness of gains on appreciation of investment of sale or exchange of Opportunity Fund investment.  This exclusion only applies to gains accrued after an investment in an Opportunity Fund.

 

Treasury and the IRS plan to issue additional information on Federal Qualified Opportunity Funds to address the certification of Federal Opportunity Funds, which are required to have at least 90 percent of fund assets invested in Federal Opportunity Zones. The IRS has posted a list of Frequently Asked Questions about Opportunity Zones and is currently working on guidance on how the Federal Qualified Opportunity Zone benefit under IRC 1400Z-2 (including the certification of Federal Qualified Opportunity Funds and eligible investments in Federal Qualified Opportunity Zones) will be administered. IRS and Treasury are giving this guidance high priority for rapid issuance over the next few months.

Documents

Frequently Asked Questions

Who creates or administers Qualified Opportunity Funds?

Qualified Opportunity Funds may be created/organized by a corporation or a partnership for the purpose of investing in Qualified Opportunity Zone Property (other than another Qualified Opportunity Fund) that holds at least 90% of its assets in Qualified Opportunity Zone Property.  Qualified Opportunity Funds may be closely held or professionally managed. 

How many Federal Qualified Opportunity Zones are in Georgia?

The U.S. Department of Treasury designated 260 census tracts within Georgia as Federal Qualified Opportunity Zones.

What criteria was used to make the determination?

Poverty and income criteria were used to determine eligibility of census tracts. The Census Tracts with some of the highest poverty levels in the state were recommended to the U.S. Department of Treasury for designation.

Is Georgia’s Opportunity Zone program the same as the Federal Qualified Opportunity Zone program?

No.  The Federal Qualified Opportunity Zone program is an investment tax credit, which provides capital gains tax credits to those who invest in Opportunity Funds that must re-invest in business ventures or real estate within designated Federal Qualified Opportunity Zones. Georgia’s Opportunity Zone program is a redevelopment tool of the Job Tax Credit program, which provides job tax credits to eligible businesses that locate within the state’s designated opportunity zones.

Where can I find which census tracts are designated?

Click here for an interactive map of designated census tracts.

Have the rules and regulations been adopted for the Federal Qualified Opportunity Zone program?

On October 19, 2018, The U.S. Treasury and Internal Revenue Service issued proposed regulations and other published guidance for the Opportunity Zone tax incentive.  They also released Form 8996, which investment vehicles will use to self-certify as Qualified Opportunity Funds.   Click here for more information on the proposed regulations and other published guidance.    Additional rules and guidance on the program’s technical aspects are anticipated in Q1 2019.

What benefits are available to businesses within a designated Federal Qualified Opportunity Zone?

Businesses located within a Federal Qualified Opportunity Zone may seek tax-advantaged investment from a Qualified Opportunity Fund.  The business is the beneficiary of investment capital; the investor benefits from the savings and investment return.

What is a Qualified Opportunity Fund?

A Qualified Opportunity Fund is a vehicle through which individuals with unrealized capital gains can achieve tax savings by investing in the fund.  Subsequently, Qualified Opportunity Funds must invest at least 90% of their funds within Federal Qualified Opportunity Zones.

What role will the Department of Community Affairs (DCA) have in the Federal Qualified Opportunity Zone process?

This is a federal program administered by the U.S. Department of Treasury. DCA and the Department of Economic Development are committed to providing education and current information to help Georgia’s communities attract investments and take full advantage of the federal program.  Local communities will promote their Federal Qualified Opportunity Zones to Qualified Opportunity Funds in order to secure investments and bring additional economic development to local businesses and families.