Updated: Feb 3
The Qualified Opportunity Zone (QOZ) program encourages investment to spur economic growth in low-income areas in the U.S. by offering significant tax benefits to real estate investors.
Example: Eight years ago, Julie purchased a small apartment building in her hometown. The property was priced right when she bought it, and over the years generated a nice healthy cash flow and – to her pleasant surprise – has nearly doubled in value.
She’s built up a lot of equity in the building and figures that now might be a good time to sell, when the market is so strong. But the problem is paying capital gains tax. Julie knows she can use a 1031 Exchange to defer capital gains (she did that when she purchased her apartment building) but she is concerned about finding a like-kind replacement especially while multifamily cap rates are at historic lows.
Julie wants to stay invested in real estate, but hopefully in a less hands-on role than she has had with her previous apartments. She begins researching alternative real estate investments and discovers the Qualified Opportunity Zone program. The more she learns about opportunity zone investing, the more she likes what she sees.
What are Opportunity Zones?
The Tax Cuts and Jobs Act passed by Congress in 2017 created the Qualified Opportunity Zone (QOZ) program. The program encourages investment to spur economic growth in low-income areas in the U.S. and its territories by offering significant tax benefits to real estate investors.
By investing realized capital gains in QOZs real estate investors can reduce their existing capital gains tax liability. Better still, investors can completely eliminate all capital gains tax liability from future value appreciation on Qualified Opportunity Zone investments.
These investment tax incentives give investors the opportunity to nearly double their after-tax returns when compared to a traditional real estate investment.