Reaping Tax Benefits from Qualified Opportunity Zone Investments

Question:        I personally realized a large capital gain from the sale of my stock.  Can I avoid or defer the gain by reinvesting some or all of the sale proceeds in a qualified opportunity zone investment?

Answer:          A new trilogy of tax benefits are provided by the Federal government for those willing to make long-term investments in economically-distressed community areas.  The tax on the capital gain itself can be deferred for a number of years. Further, the amount of the capital gain which ultimately will be taxed can be reduced. Finally, the appreciation in the qualified opportunity zone investment itself can be permanently excluded from tax.  Taxpayers who have realized capital gains, whether from the sale of marketable securities, real estate or other investments, can defer and in some cases reduce their taxable gain by reinvesting the sale proceeds in qualified opportunity zone investments.

The 2017 Tax Cuts and Jobs Act created tax incentives for taxpayers who invest in “qualified opportunity zones” which are geographic locations designated by States. A separate entity is first created such as a limited liability company or a corporation which in either case must satisfy specific statutory requirements to constitute a qualified opportunity zone investment.  The investment is then offered for sale which primarily attracts Investors with capital gains who contribute their sale proceeds to these investments. To date, most opportunity zone investments have been created by investment institutions or syndicators.  The congressional intention is to further community development in economically distressed areas which are designated opportunity zones. While these new opportunity zone investments are in their infancy, the expectation is that income tax incentives will entice taxpayers to deploy cash received from capital gain transactions into investments which will enhance community development.

No doubt the primary benefit to be realized by opportunity zone investors is the deferral of tax on the transaction giving rise to the capital gain that has been realized. Taxpayers have 180 days from the date they realize a capital gain to reinvest their sale proceeds in an opportunity zone investment. By doing so, the capital gain which has been realized need not be recognized or taxed until the earlier of the date the opportunity zone investment is disposed of by the taxpayer or December 31, 2026.

An opportunity zone investor can also enjoy a decrease in the taxable gain as the amount of the gain recognized or taxed will decrease by 10% if the taxpayer holds the  opportunity zone investment for a period of at least five years; an additional 5% of the gain can avoid taxation if the taxpayer holds the opportunity zone investment for a period of seven years. The combination of the deferral of tax on the original capital gain and the decrease in the gain by as much as 15% will no doubt encourage taxpayers to invest in entities which satisfy the opportunity zone requirements.

An additional benefit of an opportunity zone investment is the permanent exclusion of gain from tax on the opportunity zone investment. To qualify for the gain exclusion on the investment, the taxpayer must hold the opportunity zone investment for a period of  at least ten years.  Taxpayers, by not having to pay tax at the time the initial capital gain is realized, can have their entire investment held in an opportunity zone investment that may never be subject to income tax.

Opportunity zone investments are the current rage in income tax planning.  New opportunity zone investments are being created on a regular basis by various investment institutions and other promoters. Taxpayers with gains from real estate investments have always had and continue to have the opportunity to defer gains by reinvesting sale proceeds in so-called like-kind real estate properties. The 2017 Tax Act now creates a strategy for any investor with a capital gain, real estate or otherwise,  to defer tax on a realized gain while also enjoying other tax benefits.

A form of this article was also published in Forbes. To view this publication, please click here.

The Tax Corner addresses various tax, estate, asset protection and other business matters.  Should you have any questions regarding the subject matter or if you have questions you want answered, you may contact Bruce at (312) 648-2300 or send an e-mail to

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