In 2017, the Tax Cuts and Jobs Act created opportunity zones. These zones allow for investments in low income areas. This is appealing to investors because it offers many opportunity zone tax benefits. From the community’s perspective, it’s an opportunity to create jobs, pump money into their community, and promote economic growth. Since it’s mutually beneficial, many investors rushed to make an investment. This is great, but there are some common mistakes that investors are making when they invest. Here are the 3 common mistakes.
Not Investing in a Qualified Opportunity Zone
Some people get so excited to start their business that they don’t even check if they’re actually investing in a qualified opportunity zone. These zones are economically-distressed areas that have an average poverty rate of 27.7% or more. These areas are determined by the government and can be found online using the Census Bureau’s Geocoder tool. If you accidentally invest in an area that isn’t an opportunity zone, you will not receive the opportunity zone tax benefits.
Not Following the Time Frame
One of the regulations states that the investor must reinvest capital gains into the zone within 180 days in order to qualify. Many times, the capital gain is realized on the date that the asset is sold. This means that the investor can sell an opportunity fund investment and reinvest within 180 days without recognizing the gain. This appeals to many investors, but if they don’t follow the time frame, they won’t receive the opportunity zone tax benefits.
Having Multi-Asset Funds
The guidelines to investing in opportunity zones are not always clear, especially with multi-asset funds. The Economic Innovation Group, which is the group that developed the opportunity zone concept, recently announced that the Treasury and IRS need to make the guidelines clear. All things considered, it’s recommended that investors don’t use multi-asset funds until the subject has clear rules. By waiting, they’ll reduce any misunderstandings regarding opportunity zone tax benefits.
It’s important to avoid mistakes, as these mistakes can prevent a person from receiving tax benefits. One of the ways to reduce mistakes is by hiring an opportunity zone attorney. The opportunity zone attorney will make sure you get the most opportunity zone tax benefits.
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