Investing Capital Gains into a Qualified Opportunity Fund

Opportunity Zones were created as part of the Tax Cuts and Jobs Act of 2017. The program is meant to help support existing businesses, grow new businesses, and finance real estate projects in low-income communities. In 2023, it is estimated that more than $37.6 billion has been raised by Qualified Opportunity Funds (QOF), investment vehicles that allow taxpayers to invest capital gains and qualify for deferral and other tax benefits.

Transform Your Capital Gains with Qualified Opportunity Funds

Generating capital gains from selling stock or any other asset is usually a taxable event. When you reinvest proceeds from the sale of an asset into a QOF, you can defer paying capital gains taxes on those proceeds until as late as December 31, 2026, or until you sell your QOF investment, whichever comes first. Investors have 180 days from recognizing a capital gain to reinvest it into a QOF to defer capital gains taxes.1

Additionally, if you hold your QOF investment for at least 10 years, any appreciation in the value of your QOF investment can qualify for permanent exclusion from capital gains taxes. This means you have the potential to not only delay paying capital gains taxes but also reduce your overall tax liability.1

What are some other considerations for QOFs?

• Evaluate the Investment Fundamentals: Investors should assess QOFs with the same diligence as any other investment opportunity. The specifics of the underlying project or business is critical to determining whether it aligns with your financial goals and risk tolerance.

• Tax Benefits Are Secondary: While QOFs can offer attractive tax advantages, these benefits should not drive the decision alone. The investment should still make sense for your overall portfolio.

• Filing Requirements: To access the tax benefits, investors must file the appropriate IRS forms, such as electing to treat the investment as a Qualified Opportunity Zone investment. It's important to consult a qualified tax professional to assess what forms are required.

• Consider Illiquidity: Real estate and other QOF investments are typically illiquid, meaning your capital could be tied up for a substantial period, often ten years or more. Be prepared for the long-term commitment and understand that liquidity is generally dependent on the sponsor's timeline. As a note, private placements are illiquid investments and are intended for investors who do not need a liquid investment.

Tax aspects of such investments can be complex and may differ depending on the property or offering and on individual tax circumstances. Neither Crowd Street or its affiliates offer tax or legal advice. Investors are strongly encouraged to seek advice from qualified tax professionals and/or legal experts regarding the tax consequences based on their particular circumstances.

1 https://www.irs.gov/credits-deductions/opportunity-zones-frequently-asked-questions#general 2 https://www.novoco.com/notes-from-novogradac/qofs-report-353-billion-jump-in-2023-equity-moving-total-beyond-37-billion