Unlocking a new tax-advantaged investment opportunity
Unlocking a new tax-advantaged investment opportunity
Insight

Unlocking a new tax-advantaged investment opportunity

Discover how to defer certain capital gains while also revitalizing low-income communities.

Do well with new economic opportunities and do good by making a social impact.

Enacted as part of the 2017 Tax Cuts and Jobs Act, the Opportunity Zones (OZones) program encourages investment in distressed communities to aid in job creation and new business formation by deferring capital gains and reducing tax obligations.

According to the Economic Innovation Group (EIG), a Washington, D.C. based public policy organization, there were more than $6 trillion in unrealized capital gains at the end of 2017. The QOZ program encourages investors “to put money into places where they wouldn’t normally invest,” according to EIG founder Sean Parker. Senator Corey Booker (D-NJ) has called this new, tax-advantaged asset class a “domestic emerging market.”

By the numbers

Begin to unlock new opportunities with this overview of the  Ozones program.

The U.S. Department of Treasury (Treasury) qualified more than 8,700 census tracts across all states, U.S. territories, and the District Columbia, as Qualified Opportunity Zones (QOZs).

To qualify for the program, individuals and corporations must reinvest their capital gains within 180 days of the sale or exchange of virtually any asset (e.g., stocks, real estate, art) into a Qualified Opportunity Fund (QOF), which must, in turn, invest the gains in a business located within a QOZ.

The QOF must be an organized corporation or partnership and hold at least 90 percent of its assets in a QOZ property. 

The QOZ program has three noteworthy tax benefits:

  • Deferral of capital gains tax until as late of December 31, 2026
  • 10 to 15 percent reduction in gains for five- to seven-year holding periods
  • No tax on gains generated by a QOF if it is held for 10 years

Don’t let time run out: to maximize the potential tax benefit, investment of capital gains should be done by December 31, 2019.

The right tax guidance

Though the U.S. Department of Treasury and the IRS recently issued proposed regulations, which provide vital clarification of this new program, questions still remain. KPMG’s knowledgeable tax specialists can advise on both QOZ transactional and compliance-related matters to help you successfully reinvest your capital gains in the QOZ program.

Our QOZ services include:

  • Review of gains to be deferred for qualification purposes
  • Assistance with QOF tax and organizational structuring
  • Review of QOF formation documents for partnerships and corporations
  • Review of contribution and partnership agreements for federal and state tax implications
  • Due diligence of assets to be acquired by QOFs
  • Tax modeling of QOFs and their investors
  • Preparation of QOF annual tax compliance and tax return services
  • Monitoring of QOFs for continuing compliance under the program requirements
  • Audit of QOFs.

Learn more about QOZs and how you might benefit from this new program here.