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Growth Opportunities: What Are The Real Estate Opportunity Zones

growth opportunitiesGrowth opportunities in real estate are a big deal. When the Economic Innovations Group initially devised the opportunity zones, the goal was to encourage investments in low-income rural and urban communities.

This is an incredible program meant to:

  • grow new businesses,
  • support growing businesses, and to
  • finance real estate projects in low-income communities

So, what are real estate opportunity zones, and what do they have to do with real estate? Take a look at some growth opportunities in this field that may interest you.

Growth Opportunities: What Are The Real Estate Opportunity Zones

Every state has several thousand real estate opportunity zones that represent a great tax planning opportunity. Regardless of where you get your capital gains from, the 2017 Tax Act allows you to defer them by investing in the Qualified Opportunity Fund. You can defer up to six years.
Another powerful benefit to consider is that when your investments remain in Qualified Opportunity Zones for 10 years, the government forgives any capital gains that will incur during that period. We’ll explain what that all means for you in terms of real estate below.

What Are Real Estate Opportunity Zones?

A Qualified opportunity zone is a pre-selected distressed community in either the rural or urban areas. These areas have a potential need for revitalization. These are the communities that never recovered post-recession, and hence they have become the opportunity zones.

The US Congress introduced the Opportunity Zones Programs after realizing that there was as much as $6 trillion in unrealized capital gains they could unlock.

As a real estate investor, you can enjoy the preferential tax benefits that come with the program if you invest in these distressed communities. In turn, when people invest in the communities, they’ll benefit from funding and development.

Every state has qualified opportunity zones. With over 8,700 Qualified Opportunity Zones in the US, you have an opportunity to capitalize on this. There is already $25 billion dedicated to the program so far, which means investors are diving at the opportunity, and you might want to as well.

Why Should You Invest In Opportunity Zones?

These growth opportunities are huge for you? Why? One of the most appealing aspects of this program is that it offers you a tax avoidance opportunity. Once you invest in these zones, you can defer paying taxes for as long as 10 years!

In addition to that, you’ll get to enjoy:

  • tax cuts, and 
  • deductions on taxes

This, however, depends on how long you hold onto the investment.

  • The first tax break will come if you hold the investment for five years, and 10% of your original capital gains will be excluded from your taxes.
  • A 15% capital gains tax break comes after seven years.
  • The largest will come after holding for 10 years when you’ll receive a permanent exclusion for your opportunity zone gains. Note that this is not just for the capital gains.

Even better, if you hold on for 10 years or longer, you will qualify for the increase of your original investment once the fund exchanges or sells. This makes it vital for you to understand that the sooner you hop on this bandwagon, the faster you’ll start growing your return of investment.

Related: A Few Reasons You Should Invest in Real Estate

income restricted apartmentsHow Do You Invest in These Opportunity Zones?

Now that you know what you stand to gain, how do you invest in these Qualified Opportunity Zones?

  • You first need to sell an appreciated property to realize your capital gains.
  • Within the first 180 days of closing that sale, you need to reinvest those capital gains to the Qualified Opportunity Fund.
  • Once you invest, you will qualify for the temporary tax deferral on those gains, which is better than 1031 exchanges.

Are All Opportunity Zones the Same?

In a nutshell, no!

With thousands of real estate opportunity zones in the US, most of which are located in rural areas, most investors feel that investing in the cities involves less risk. This is quite true because there is a higher potential for quality tenants, which means stabilized returns and stable and predictable cash flow.

Are All Opportunity Eligible For Tax Benefits?

You need to invest in income-generating assets located in the opportunity zone. For instance, if you invest in an apartment complex, it would qualify as an opportunity zone property.

On the other hand, with a:

  • golf club,
  • massage parlor,
  • liquor store, or 
  • gambling facility…

…or basically any businesses similar to this, you may not qualify for the tax benefits.

Before you reinvest your capital gains, make sure you understand what you’re getting into.

What to Keep in Mind

The one thing you need to keep in mind is that the best investments will be long term.

Tax exclusion is, by far, the most attractive benefit of the opportunity zones program. Now, to reap the best reward out of this program, you need to hold your assets for 10 years or more so you won’t have to pay taxes on your Opportunity Zones Gains.

Therefore, long-term is the way to go if you decide to invest in this program. Beyond that, keep in mind that you should only contribute your capital gains because this is the only way to get the tax benefits.

You should also start your search as soon as possible, especially if you’re looking to invest for the long term.

All these areas will become saturated when everyone realizes what’s going on. However, you have a head start, and you can identify the most profitable investment opportunities if you dive right into it before everyone else.

Qualified Opportunity Zones: Taking It Away

If you have plans to sell an investment property and you’d like to reduce taxes on your capital gains, the best place to reinvest is in the real estate opportunity zones.

You’ll enjoy:

  • great investment growth opportunities,
  • diversity on your investment portfolio, and
  • all the benefits that will come with professionally managed funds.

Even better, you’ll take advantage of this once-in-a-lifetime tax break.

Now that you’re aware of the growth opportunities and what you stand to gain, why not take advantage?

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AUTHOR LaTia Longuemire

My name is LaTia Longuemire. I enjoy writing, singing, and cooking in my spare time. My passion is helping others. At this stage in my lifetime, I'm primarily focused on my children. They are everything that keeps my world spinning.

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