Weekend Reading – What Opportunity Zone Investors (and Observers) Should Consider Today

Investors should consider the full range of outcomes before putting their money to work in qualified opportunity zones


As an investor, you want to anticipate all the risks, pitfalls and ranges of outcomes before you put money to work. Qualified opportunity zones continue to make headlines and present a new investment opportunity. As you may know, opportunity zones are a creature of the federal tax overhaul that was enacted at the end of 2017. The program offers tax incentives to investors who allocate capital to the over 8,700 census tracts that have been designated as opportunity zones. The policy goal is sustained economic development and community benefit. In light of the recent IRS hearings, there are five current investment, tax and community considerations for investors who want to be thoughtful about the pros and cons of opportunity zones:

  1. Community Benefit – Like any investment, opportunity zone investments impact real people in real communities, and investors must be thoughtful about how their capital will be deployed and whether their activity will in fact have a positive impact.
  2. Exit Strategy and Reinvestment – Asset sales can be an important exit strategy for any business or investment fund. But, it remains to be seen whether the IRS will allow opportunity zone funds to sell assets. If asset sales are prohibited, it could be more difficult to maximize value on exit.
  3. Wealth Transfer Planning Implications – An opportunity zone investment can defer, and even partially eliminate, the federal tax that you would otherwise owe on capital gains. But, for the vast majority of property, you can eliminate tax on the embedded gain simply by holding the property until you die. It is uncertain whether the tax benefits of an opportunity zone fund will survive the death of the original owner, so it pays to consider the long-term future consequences of an opportunity zone investment today.
  4. Operating Businesses – If you want to invest in an operating business, wait for clarification from the IRS before you invest through an opportunity zone fund.
  5. “Substantial Improvement” to Property – If you want to renovate opportunity zone real estate, be aware that you have a strict 30 month construction window.


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