According to the IRS, a QOZ is a federal tax incentive provided to investors or those with capital gains to spur economic development and job creation in distressed communities. This means that any corporation or individual with capital gains can qualify for this tax cut. Anyone can receive these tax incentives - even if a person doesn’t live, work, or have an existing business in a QOZ.  The only requirement is to invest the amount of a recognized eligible capital gain in a Qualified Opportunity Fund and elect to defer the tax on that gain. An Opportunity Fund, is a fund created to invest in a QOZ property - an eligible business or property that is located in a QOZ.

 

The QOZ program provides three different tax benefits for investing in Opportunity Zones.

 

1. Temporary deferral of taxes on previously earned capital gains.

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This means that a person or business can place existing assets with accumulated capital gains into “Opportunity Funds.” Those existing capital gains are not taxed until the end of 2026. 

 

2. Basis step-up of previously earned capital gains invested.

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This means that if a person or business holds assets within an “Opportunity Fund” for 5 years, only 90% of the original gain is taxed (10% exclusion or “discount”). And likewise for 7 years, only 85% is subject to tax (15% exclusion). 

 

3. Permanent exclusion of taxable income on new gains. 

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This means that for investments held for at least 10 years, investors pay NO taxes on any capital gains produced through their investment in “Opportunity Funds.”