Qualified opportunity zones were created under the 2017 Tax Cuts and Jobs Act. These zones are economically-stressed communities that can benefit from opportunity zone investments by creating jobs and stimulating economic development. Qualified opportunity zones can be found throughout the United States; these areas are qualified opportunity zones if they have a poverty rate of at least 20% or if the median family incomes are no greater than 80% of those in their surrounding areas. If you’re considering investing in an opportunity zone in New York, you should be aware of the advantages and disadvantages of doing so.
Advantages
- Helping the Community – Since opportunity zones in New York are in low-income areas, you’ll be providing jobs to people who need them, meaning you’ll be generating income for that community.
- Temporary Tax Deferral of Capital Gains – When an investor sells an appreciated asset, they realize a capital gain, which will get taxed. An opportunity zone tax benefit, however, means that investors can place existing assets with accumulated capital gains into these zones without getting taxed until the end of 2026 or until the asset is disposed of.
- Step-Up of Previously Earned Capital Gains Invested – When capital gains are placed in qualified opportunity zones for at least 5 years, investors’ basis on the original investment increases by 10 percent.
- Permanent Exclusion of Taxable Income on New Gains – Investors will not have to pay any capital gains taxes on investments for at least 10 years.
Disadvantages
- It’s important to note that only capital gains from opportunity zone funds are tax-free. If the funds invest in real estate and generate rental income, on the other hand, the rental income will be taxed.
- The tax break provided to investors allow them to accumulate more wealth, but does not have any rules guaranteeing that local residents will benefit from these investments. Therefore, instead of proving jobs and housing in low-income areas, it could cause gentrification.
- Because of the tax benefits, people who have no experience in running a business are opening businesses in opportunity zones in New York. This could result in failed businesses.
Although there are some disadvantages, the advantages of investing in qualified opportunity zones outweigh the negative aspects. If you’re interesting in investing in an opportunity zone in New York, there are opportunity zone attorneys that can help with the process.
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