If you’re looking for ways to save on your tax bill, consider investing in an Opportunity Zone fund. This program allows businesses to earn tax credits by investing in distressed communities. Let’s look at several benefits of this program for both businesses and individuals.
WHAT ARE OPPORTUNITY ZONES?
An Opportunity Zone is a designation created as part of the 2017 Tax Cuts and Jobs Act. The law provides incentives to businesses for investing in “opportunity zones,” areas that are low-income and undercapitalized.
These communities are located throughout the United States in most major cities in all 50 states. The objective of these zones is to spur growth in these communities by encouraging private investments in Qualified Opportunity Funds (QOF).
In other words, you can defer taxes on capital gains by investing in a Qualified Opportunity Zone Fund within 180 days of selling property that earned you a profit. If you hold your QOF investment for 10 years, any gains you make from its sale will be tax-free.
5 BENEFITS OF OPPORTUNITY ZONES
At its heart, Opportunity Zones offer taxpayers a chance to defer tax payments. There are also several important benefits for economically distressed regions. The following are five ways that investments in Opportunity Zones can increase commercial development and community growth.
Distressed communities often suffer from a lack of employment opportunities. As there may be few local businesses in these areas, people seeking work must often commute a long distance to find it.
Opportunity Zones provide incentives for businesses to expand and hire more employees. In this way, jobs are created in communities that need them the most.
By encouraging people to open businesses in economically disadvantaged areas, Opportunity Zones can contribute to the growth and vibrancy of local neighborhoods.
Community leaders can play a crucial role, offering input about investments that will fill the needs of community residents. For example, a neighborhood may benefit from a diversity of restaurants, grocery stores, and retail outlets.
TAX REVENUES FOR COMMUNITIES
When new businesses are created, it generates more tax revenue for local communities. This provides funds that can be invested in essential services such as schools, roads, public transportation, and hospitals.
Improvements in local infrastructure, in turn, make a community more attractive to business owners and skilled workers.
AFFORDABLE HOUSING FOR DISADVANTAGED POPULATIONS
Individuals who invest in real-estate projects in Opportunity Zones can qualify for tax benefits. If developers build or renovate homes and apartment buildings, it can help meet the demand for affordable housing in these communities.
Of course, this depends on the type of housing that’s built. Critics worry that investors may focus on gentrification projects that attract higher-income residents rather than helping the disadvantaged.
That said, there have been efforts by legislators to ensure that investments focus on reviving struggling neighborhoods. In 2019, congressman Hank Johnson introduced the Opportunity Zone Fairness and Inclusion Act to prohibit investments in luxury building projects.
By all considerations, 2020 was an extremely challenging year for business owners. Many had to close their doors, either temporarily or permanently, due to lockdowns.
As businesses attempt to recover in 2021 and beyond, they need all the help they can get. Opportunity Zones can be one factor that encourages investors to support communities that were the most affected by the pandemic.
INVEST IN AN OPPORTUNITY ZONE FUND TODAY
Opportunity Zones provide benefits to investors as well as communities. With over 8,700 Qualified Opportunity Zones around the country, you have many investment choices before you.
If you’d like to benefit from this program and need help navigating your way around Opportunity Zones, it can help to consult with experts.
At Incentax, we are tax credit specialists who can help you identify state and federal tax credits to help offset the cost of doing business. To learn more about our services, contact us today.