Opportunity Zone Funds – The New “Rock Star” of Real Estate?

I just read articles in both “Barron’s” and “The Real Deal New York” extolling the virtues of “Opportunity Zone Funds.” This tax-break program is part of the Tax Cuts And Jobs Act (also known as the Tax Reform Act) and gives investors an incentive to invest in funds that invest in “qualified opportunity zones” or designated low-income neighborhoods. It’s a win-win: neglected, deteriorating neighborhoods get some much-needed attention, and investors get a tax break. According to the Economic Innovation Group, there are approximately $6 trillion of unrealized capital gains by both individuals and corporations that could be plowed into these funds rehabbing neighborhoods.

Here’s the new law in a nutshell: You incur a capital gain by selling an appreciated asset (stocks, real estate, etc.). You then have 180 days to take that money and put it into a qualified opportunity fund. If you hold onto the investment for 5 years, you can deduct 10% off your capital gains bill. After 7 years, your deduction increases to 15%. And, if the investment is held for 10 years, you pay ZERO taxes on the gain!

Because of the amazing tax incentives, these opportunity zones are popping up like popcorn. I’m waiting on clarification as to what actually constitutes the actual “fund.” Does it have to have a minimum investment? Does it have to be publicly traded? Can a few investors put together their funds into an LLC that invests in a small apartment building in an opportunity zone, or does it have to be in an entire neighborhood? Either way, the opportunities are amazing, especially for those investors who had large returns in the stock market.