For many Investors sitting on appreciated investments, December 31st looks like a deadline for investing in Qualified Opportunity Zones. After all, after that day, the reduction in capital gains tax drops from 15% to 10%. Rushing into a Opportunity Zone investment or a Opportunity Zone Fund before the end of the year may be a case of "penny wise and pound foolish".
The Opportunity Zone law allows investors to deffer capital gains by reinvesting the money into a qualified investment within 180 days of triggering the original gain, and when the deferred tax becomes due, it is reduced by 15% if the qualified investment was made in 2019, or by 10% if made in 2020 or later. While the extra 5% rate reduction may be significant, it is likely to be dwarfed by anther Opportunity Zone benefit, if the right investment is chosen. If an investor holds the Opportunity Zone investment for 10 years, the gain on the Opportunity Zone Investment becomes tax free!
For example, if 100% of the money invested in an Opportunity Zone is taxable capital gain (an unlikely scenario), it only taxes a 0.5% increase in annual return on investment to offset the addition taxes that will be owed because of a delay from 2019 to 2020. In short, when it comes to Opportunity Zones, making the right investment decision is more important than moving quickly!
Imagine investing in an apartment complex, holding your investment for 15 years, and then incurring no taxes after you sell the building — no 1031 required. Or imagine starting an operating business using gains that were made on stocks, artwork or some other asset as the seed to start the new business.
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