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Investing in an Opportunity Zone

An opportunity zone typically represents an economically distressed area which is in an urgent need of revitalization through investment. The main purpose of opportunity zones is to create economic growth and of course create more job opportunities. This is best done by pushing investments in these distressed regions. In order to help incentivize these investments in low-income regions, the Federal Government created what is known as a qualified opportunity fund. Of course, along with the creation of these funds also came certain tax benefits for investors.

Those investors who decided to invest in a qualified opportunity fund would see a 10% adjustment to the amount of the investment, given there was a 5-year holding period on the fund. The low income areas are defined with the help of a census, and they can qualify as an opportunity zone based on this census and data. Eligible ones are designated officially by state governors (they are the ones who actually nominate a given number of such zones). Then, the Secretary of US Treasury is the one that certifies and designates an opportunity zone. In case you are interested to find out more details regarding the eligibility criteria, the nomination and designation process, you can access such information in the IRS main website.

Currently, there are about 8,800 such opportunity zones across the US. Most of these regions that are designated as an Opportunity Zone have seen a major lack of investments for several decades. Approximately 20% of all the opportunity zones can be found in rural areas. Those who decide to invest in qualified zones will also benefit of certain tax incentives, and this is exactly what made this type of investment so attractive to investors. It is important to mention that the qualified opportunity funds must keep 90% of their assets in such a designated opportunity zone. This is one of the main requirements in order to become eligible for tax benefits. These funds can also choose to invest in certain businesses located in an opportunity zone or they can opt to invest in real estate available here.

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