What Are OPPORTUNITY ZONE Properties?
In 2017, the federal government passed the Tax Cuts and Jobs Act. Part of this legislation created “opportunity zones” – specific geographic areas, sometimes as small as a block or two, within individual municipalities that were considered economically disadvantaged.
How Can OPPORTUNITY ZONE Properties Benefit Me?
Investors who sell real estate may use the proceeds from a sale to purchase and improve properties in a designated Opportunity Zone. Doing so allows the investor to reduce, or even eliminate the capital gains taxes that would have been owed as a result of the prior sale.
In general, the following principals apply to opportunity zone transactions, though investors should seek legal and tax advice before entering into any transactions:
- Investors can roll existing capital gains into Opportunity Funds with no up-front tax bill.
- A 5-year holding increases the rolled-over capital gains basis by 10%
- A 7-year holding increases the rolled-over capital gain investment basis 5% for a total of 15%
- Investors can defer their original tax bill until December 31, 2026, at the latest, or until they sell their Opportunity Fund investments, if earlier.
- Opportunity fund investments held in the fund for at least 10 years are not taxed for capital gains.
How were New Jersey’s Opportunity Zones designated?
Designated census tracts were based upon a formula incorporating the Municipal Revitalization Index (MRI) which reflects key economic indicators (e.g. income, unemployment rate, property values), that also takes into consideration geographic distribution, access to transit, and the value of existing investments, including those encouraged by state programs and incentives. To ensure a fair and transparent selection process, feedback and input was received from mayors throughout the state and the New Jersey Congressional delegation prior to the Governor’s Office making the final designation of state Opportunity Zones.
How many Zones were created?
169 census tracts in 75 municipalities were nominated on March 20, 2018 and approved by the US Department of the Treasury on April 9, 2018.
Can additional Census Tracts be designated as Opportunity Zones?
No, all of New Jersey’s designations have been accepted and approved by the US Department of the Treasury and no substitutions or additions are allowed. Opportunity Zone boundaries cannot be moved either.
Are Opportunity Zones investments limited to new construction real estate projects?
No, Opportunity Zone investments can take many forms. Investments can be made in qualified opportunity zone stock, partnership interests, or business property held by Qualified Opportunity Funds. Business property can include real property but also equipment and other forms of tangible personal property.