Opportunity Zone Overview

December 2019

This industry is in its infancy and a new set of regulations on this subject is expected shortly. We at CPAPhilly are representing many interested parties and we are researching this issue and we are listing our interpretation of frequently asked questions.

Opportunities Zones allow investors to take large gains from the sale of stock or investment real estate or other large gains and invest them into an Opportunity Zone property and defer any taxes due for up the earlier of the date of sale of the QOF investment  or 12/31/26. You have 180 days from the time of your initial sale to place your funds into an Opportunity Zone Fund If the gain is from a sale by a partnership in which the taxpayer invested the 180 day period instead runs from the last day of the partnership year.  This is a federal tax issue and not yet relevant for state or local taxes in this region

Unlike a 1031 exchange where you have to invest the entire proceeds to defer all taxes, the Opportunity Zone laws allow investors to invest just their profits while retaining the original principal.

The new property had to be purchased after 12/31/17;   Its possible to amend 2017 and seek refunds if the  aforementioned facts are meet.

If the Opportunity Zone property is held for five years,  the investor’s original basis on the initial sale of their stock or property will be increased by 10%. If the property is held for seven years, the basis of the investor’s original property or stock will be increased 15% thus eliminating some of the taxes that will ultimately be due from the initial gain.  If the Opportunity Zone property is held for 10 years, the investor would then pay any taxes due from their original sale less any taxes saved from the 15% increase in their basis. There will be no taxes due on any gain from the sale of the Opportunity Zone property itself. If the investor wants to defer taxes further, he may invest the proceeds into another Opportunity Zone property. 

The gain deferral election is made on from 8949. QOF self certify on form 8996.

A corporation or partnership intending to be a QOF must have at least 90% of its assets invested in QOZ property. 

A Qualified Opportunity Fund (QOF) must invest at least 90% of its assets in qualifying opportunity zone business property, but it can store cash on hand as "working capital" and have it treated as qualified opportunity zone business property as long as:

  • The cash is designated in writing as being for the acquisition, construction, and/or substantial improvement of tangible property in a qualified opportunity zone,
  • There is a written schedule for the expenditure of the cash showing that the cash will be spent within 31 months, and possibly longer
  • The cash must be used according to those plans

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