Opportunity Zones For Deferral and Exclusion of Capital Gains

Opportunity Zones are a new community development program established by Congress in the Tax Cuts and Jobs Act to encourage long-term investments in low-income urban and rural communities nationwide. The Opportunity Zones program provides a tax incentive for investors to re-invest their unrealized capital gains into Opportunity Funds that are dedicated to investing into Opportunity Zones designated by the chief executives of every U.S. state and territory.

The Opportunity Zones program offers three tax incentives for investing in low-income communities through a qualified Opportunity Fund.

TEMPORARY DEFERRAL
A temporary deferral of inclusion in taxable income for capital gains reinvested into an Opportunity Fund. The deferred gain must be recognized on the earlier of the date on which the opportunity zone investment is disposed of or December 31, 2026.

 
STEP-UP IN BASIS
A step-up in basis for capital gains reinvested in an Opportunity Fund. The basis is increased by 10% if the investment in the Opportunity Fund is held by the taxpayer for at least 5 years and by an additional 5% if held for at least 7 years, thereby excluding up to 15% of the original gain from taxation.

PERMANENT EXCLUSION
A permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in an Opportunity Fund if the investment is held for at least 10 years. This exclusion only applies to gains accrued after an investment in an Opportunity Fund.

Please see the link below for the list of recently updated areas in New Jersey. https://www.state.nj.us/dca/divisions/lps/opp_zones.html

If you have any further questions or would like to learn more please contact us at jldonenfeld@jldtax.com.