Could investing in or developing businesses in an Opportunity Zone be right for you? Here are some frequently asked questions and more about the possibilities in Loudoun County, Virginia.
Opportunity Zones are census tracts identified through the Tax Cut and Jobs Act of 2017. The federal program named 8,700 zones (11 percent of the U.S.) and encourages investment of capital gains in these economically-distressed areas. Two such zones exist in Loudoun County.
Investing in an Opportunity Zone allows you to defer capital gains tax for up to seven years. If you keep your money in the program, 15 percent of the original capital gains can be eliminated for tax purposes. In other words, investors only have to pay taxes on 85 percent of the original gains. Investors will also earn tax-free appreciation from capital gains investment if that investment is held for 10 years.
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There are tight timelines for both investors and developers that want to take full advantage of opportunity zone benefits (see the tables below). With that in mind, some financial advisors recommend that developers find and fund their projects with debt first, given timeline constraints. Land must be purchased after 2017 to qualify for opportunity zone benefits, but improvements still qualify even if the land was purchased prior to 2017.
| Year | Action/Result |
|---|---|
| Year 1 (2019) | Sale of assets and invest capital gain within 180 days |
| Year 2 (2020) | |
| Year 3 (2021) | |
| Year 4 (2022) | |
| Year 5 (2023) | 10 percent of original gains tax is eliminated |
| Year 6 (2024) | |
| Year 7 (2025) | 15 percent of original gains tax is eliminated |
| Year 8 (2026) | Original capital gains are recognized (minus percent eliminated) |
| Year 9 (2027) | |
| Year 10 (2028) | Appreciation on the gain eliminated |
| Year | Action/Result |
| Year 1 (2019) | Receive funds and acquire property within 180 days |
| Year 2 (2020) | |
| Year 3 (2021) | Build or rehab a project (30/31 month rule) |
| Year 4 (2022) | |
| Year 5 (2023) | |
| Year 6 (2024) | |
| Year 7 (2025) | |
| Year 8 (2026) | Investors owe taxes this year, making it a good year to offer a financial return |
| Year 9 (2027) | |
| Year 10 (2028) |
Sale of assets and invest capital gain within 180 days
10 percent of original gains tax is eliminated
15 percent of original gains tax is eliminated
Original capital gains are recognized (minus percent eliminated)
Appreciation on the gain eliminated
Receive funds and acquire property within 180 days
Build or rehab a project (30/31 month rule)
Investors owe taxes this year, making it a good year to offer a financial return
