Today I'd like to talk to you about opportunity zones. First question, what is an opportunity zone? An opportunity zone is an economically-distressed community that has been identified by the U.S. government.
Video Transcript - Opportunity Zone
It's time to get down to the Brass Tacks. My name is Mel Sams. I'm the Managing Associate at Sams CPA. Today I'd like to talk to you about opportunity zones. First question, what is an opportunity zone? An opportunity zone is an economically-distressed community that has been identified by the U.S. government. These communities could benefit largely from outside investment in business and in real estate in another infrastructure. Now, the tax cuts and Jobs Act of 2018 relax the requirements and the safe harbors surrounding opportunity zones so that hopefully more people can qualify and that we can get more money flowing into these communities. Now, how does it work, would be the next question and that was my question when I first heard about this too and it works like this, a qualified opportunity fund, a QOF is established whereby investors can put money in that is then used in these projects either buying and selling businesses or buying and selling real estate
And again, the requirements have been loosened up so that we have more investors qualifying, but basically at the end of the day, the payoff is a potential deferred gain on the sale of these investments. Now, if an investment is made through QOF and is held for at least five years, there's a 10% deferral on the gain from the sale. If that holding period becomes seven years, that number goes to 15 and if you hold them for 10 years, you are able to step up your basis to the fair market value as of the date of the sale or exchange, which is huge. I mean, you can imagine where in some cases you could have zero taxable gain on the sale of a longterm investment that's held for over 10 years. Now again, this is something that requires deep, detailed consultation and an investigation, but if you want to know more about what areas are considered opportunity zones, the maps are located in IRS Notice 2018-48 and 2019-42.
Now again, every case is different. Every investment's going to be different. You should always consult your CPA on whether or not an investment is going to make sense for you, but I can tell you right now, there's some huge potential here and we're just starting to learn about that.
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