Q&A: Qualified Opportunity Zones

Why would I be interested in Qualified Opportunity Zones (QOZs)?

This new tax provision was created to spur investment in certain under-performing economic areas known as Qualified Opportunity Zones. You can find a map of North Carolina’s zones here.

Investing in a QOZ is one of the few opportunities in the tax code to defer (and possibly eliminate) tax on gains. Thus, you can put the whole amount of your proceeds from a sale to work rather than the proceeds less income taxes.

How long can I defer paying taxes on my gain?

Until you sell or exchange your interest in the fund that invests in the QOZ or until the deferral period ends on December 31, 2026, whichever comes first.

Besides deferral, are there other tax advantages?

Yes – 10% of the gain will be completely eliminated (not just deferred) if your eligible investment is held for at least 5 years. If you hold for 7 years, then another 5% of the deferred gain will be eliminated. After holding the investment for 10 years, tax on appreciation of your investment in the fund is eliminated, though at this point the investment would need to be sold or exchanged before December 31, 2047 to achieve this.

What gains can be deferred?

Capital gains, such as gains from the sale of stocks, bonds, and mutual funds. Individuals selling businesses or highly appreciated publicly-held stocks will likely be among those most often looking to explore this tax incentive.

If you have any questions regarding Qualified Opportunity Zones, or if you are interested in techniques to defer, or possibly eliminate, income tax on certain gains from sales, please contact us to speak with one of our attorneys.

*Intended as general guidance only and not as legal advice.