Frequently Asked Questions

Q. What is an Opportunity Zone?

A. An Opportunity Zone is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Localities qualify as Opportunity Zones if they have been nominated for that designation by the state and that nomination has been certified by the Secretary of the U.S. Treasury via his delegation of authority to the Internal Revenue Service.

Q. Have Opportunity Zones been around a long time?

A. No, they are new. The first set of Opportunity Zones, covering parts of 18 states, were designated on April 9, 2018. Opportunity Zones have now been designated covering parts of all 50 states, the District of Columbia and five U.S. territories.

Q. How do Opportunity Zones spur economic development?

A. Opportunity Zones are designed to spur economic development by providing tax benefits to investors. First, investors can defer tax on any prior gains invested in a Qualified Opportunity Fund (QOF) until the earlier of the date on which the investment in a QOF is sold or exchanged, or December 31, 2026.   If the QOF investment is held for longer than 5 years, there is a 10% exclusion of the deferred gain.  If held for more than 7 years, the 10% becomes 15%.  Second, if the investor holds the investment in the Opportunity Fund for at least ten years, the investor is eligible for an increase in basis of the QOF investment equal to its fair market value on the date that the QOF investment is sold or exchanged.

Q: Can a limited liability company (LLC) be an Opportunity Fund?

A: Yes.  A LLC that chooses to be treated either as a partnership or corporation for federal tax purposes can organize as a Qualified Opportunity Fund.

Q.  I sold some stock for a gain in 2018, and, during the 180-day period beginning on the date of the sale, I invested the amount of the gain in a Qualified Opportunity Fund.  Can I defer paying tax on that gain?

A. Yes, you may elect to defer the tax on the amount of the gain invested in a Qualified Opportunity Fund. Therefore, if you only invest part of your gain in a Qualified Opportunity Fund(s), you can elect to defer tax on only the part of the gain which was invested.

Q. Do 100% of the proceeds of an asset sale need to be placed into the QOF investment to qualify? 

A. Only the capital gain portion of the asset sale, or any fractional portion of the sale, can be invested. For example: an asset is sold for $10 million with a basis of $2 million. The $8 million gain would be eligible to receive the tax benefits of a QOF investment but you are not required to invest the entire $8 million gain.

Q. What type of capital gains are eligible for QOF investment?

A. All capital gains, both short and long term, will be eligible for QOF investment.  It is not limited to strictly real estate capital gains. Proceeds from a partnership or a percentage stake can be re-invested in a limited liability corporation and still qualify for QOF investment upon the sale of the interest in that partnership.

Q. Can a limited liability company (LLC) be an Opportunity Fund?

A. Yes.  A LLC that chooses to be treated either as a partnership or corporation for federal tax purposes can organize as a Qualified Opportunity Fund.

Q. How can I get more information about Opportunity Zones?

A. Over the next few months, the Treasury Department and the Internal Revenue Service will be providing further details, including additional legal guidance, on this new tax benefit. Updates will be posted on this website as they become available.

Q. How were Opportunity Zones created?

A. Opportunity Zones were added to the tax code by the Tax Cuts and Jobs Act on December 22, 2017.

Q. What is the purpose of Opportunity Zones?

A. Opportunity Zones are an economic development tool—that is, they are designed to spur economic development and job creation in distressed communities.

Q. What is a Qualified Opportunity Fund?

A. A Qualified Opportunity Fund is an investment vehicle that is set up as either a partnership or corporation for investing in eligible property that is located in a Qualified Opportunity Zone.

Q. Do I need to live in an Opportunity Zone to take advantage of the tax benefits?

A. No. You can get the tax benefits, even if you don’t live, work or have a business in an Opportunity Zone. All you need to do is invest a recognized gain in a Qualified Opportunity Fund and elect to defer the tax on that gain.

Q. I am interested in knowing where the Opportunity Zones are located. Is there a list of Opportunity Zones available?

A. Yes. The list of Cook County designated Qualified Opportunity Zones can be found on the Tools & Maps page.  For a list of national opportunity zones visit Opportunity Zones Resources .

Q. How does a corporation or partnership become certified as a Qualified Opportunity Fund?

A. To become a Qualified Opportunity Fund, an eligible corporation or partnership self-certifies by filing Form 8996, Qualified Opportunity Fund, with its federal income tax return. Early-release drafts of the form and instructions are posted, with final versions expected in December. The return with Form 8996 must be filed timely, taking extensions into account.

Q. What is the deadline to invest in a QOF to benefit from the tax treatment?

A. An investor may make a QOF investment as late as June 2027 and still get a 10-year step-up in basis treatment. 

Q. What are the benefits of investing in a Qualified Opportunity Fund “QOF” vs doing a 1031 exchange? 

A. Unlike Section 1031 tax deferred exchanges, only the gain, rather than the entire sales price need be reinvested. Furthermore, it appears there is no need to escrow or otherwise set aside the gain proceeds as long as the gain is deposited into a QOF within 180 days.  Additionally QOF investments can be used to off-set capital gain in real estate, stocks, bonds, a closely held business, and most other assets. 

Q. How does a corporation or partnership become certified as a Qualified Opportunity Fund?

A. To become a Qualified Opportunity Fund, an eligible corporation or partnership self-certifies by filing Form 8996, Qualified Opportunity Fund, with its federal income tax return. The return with Form 8996 must be filed timely, taking extensions into account. 

Q. How do I elect to defer my gain on the 2019 sale of the stock?

A. You may make an election to defer the gain, in whole or in part, when filing your 2019 Federal Income Tax return. That is, you may make the election on the return on which the tax on that gain would be due if you do not defer it. 

Q. What is a “sin business”?

A. A “sin business” is defined as a private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other facility used for gambling, or any store the principal business of which is the sale of alcoholic beverages for consumption off premises.

Contact Ashley to discuss your goals and see if this investment strategy might benefit you.  Not only can QOFs investments diversify your portfolio potentially bringing higher returns, they can also help you make a positive difference in your community.  Contact Ashley to discuss your goals and see if this investment strategy might benefit you.

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