Opportunity Zones Investing

Opportunity Zones Investing

The 2017 Tax Cut and Jobs Act created a new "Opportunity Zones" tax incentive program to encourage private-sector investment, economic development and job creation in economically-distressed communities throughout the United States.

Qualified Opportunity Zones (QOZs)

More than 8,700 census tracts located throughout the fifty states, the District of Columbia, and US territories (approximately 12% of the country by census tract) have been federally designated as Qualified Opportunity Zones (QOZs).1

Opportunity Zone Funds

An Opportunity Zone Fund (OZ Fund) is an investment that allows investors to defer paying taxes on recently recognized capital gains and reduce or potentially eliminate taxes on OZ Fund capital gains. To qualify, at least 90% of the assets held by the OZ Fund must be invested in QOZ property, which includes newly-issued QOZ stock, partnership interests or a business property.

Unlike a 1031 exchange, a long-term program used to defer real estate capital gains, an OZ Fund:

  • Can also invest in an operating business, subject to certain limitations.
  • Permanently excludes all capital gains taxes on the invested gain generated by the appreciation of the investment if an asset is held for more than 10 years.

Summary of tax benefits

Investing in an OZ Fund offers three key potential tax benefits

     
1 DEFER
  • Deferral of capital gain for federal income tax purposes
  • Immediately defer paying taxes on recently recognized gain until the earlier of December 31, 2026 or the date on which the investment in the OZ Fund is sold
2 REDUCE
  • Tax-basis step-up: Reduce future tax liability
  • The basis of the original investment is increased by 10% if held at least 5 years, and by an additional 5% (for a total of 15%) if held at least 7 years
3 ELIMINATE
  • Eliminate future capital gains tax
  • No capital gains taxes on new gains generated by the investment in the OZ Fund if held for 10 years or more
  • When the investment in the OZ Fund is sold (not the property being sold), the cost basis equals fair market value

Invest with impact

As well as receiving economic returns and more favorable capital gains tax treatment, investors can also invest with impact as OZ Funds direct capital to low-income urban, suburban and rural communities in an effort to help attract new businesses, create jobs, and address the issue of lack of affordable housing in the US.

1Source: US Department of Treasury Community Development Financial Institutions Fund website, updated December 14, 2018.
2Source: Aegon Real Assets US as of June 30, 2019.

Aegon Real Assets US - A history of tax-based investing

Aegon Real Assets US places an emphasis on responsible investing seeking positive social and environmental impact. For over 30 years, through our low-income housing tax credit (LIHTC) equity business, we have been investing in affordable housing in many communities that are now within QOZs.

Contact us for more information.