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Opportunity Zone

Federal Incentive
Summary

Washington County includes Qualified Opportunity Zone Number 48477170100. To stimulate private participation in revitalization of economically distressed areas, taxpayers who invest in Qualified Opportunity Zones are eligible to benefit from capital gains tax incentives available exclusively through this new legislation.

The Opportunity Zones program, established through the Tax Cuts and Jobs Act, aims to spur long-term private sector investments in low-income communities nationwide. Investors in Qualified Opportunity Funds (QOFs) participating within the designated Qualified Opportunity Zones (QOZs) can take advantage of federal tax benefits in exchange for their contribution to economic growth and investment in distressed communities. 

For projects within the QOZ, the program may also help accelerate capital formation, reduce capital cost, fill gaps in the capital stack and enhance other federal tax credit transactions. The program applies to specific types of investments in which the QOF may invest:

  • Partnership interests in businesses that operate in a qualified Opportunity Zone.
  • Stock ownership in businesses that conducts most or all of their operations within a qualified Opportunity Zone.
  • Property such as real estate located within a qualified Opportunity Zone.

How it works 

The Opportunity Zones program offers federal tax incentives for investing unrecognized capital gains in QOFs, which are investment vehicles created specifically for these purposes. The amount of benefit ultimately recognized depends on the holding period of the investment. 

1. Deferral 
Investors receive a temporary deferral of tax on capital gains reinvested into QOFs. The reinvestment must be made within 180 days of the sale creating the gain, or in certain situations, within 180 days of the end of the taxpayer’s tax year. Generally, the period of deferral ends upon the earlier date of the sale of the reinvestment in the QOF or Dec. 31, 2026. There are also other events that may accelerate inclusion of the originally deferred gains and terminate the OZ benefits.  

2. Reduction
The reduction benefit provides investors a reduction of the original gain that is subject to taxation, the amount of which is contingent on the length of time they maintain the investment in the QOF. If the investment is held for five years, 10 percent of the original gain is eliminated. If it is held for seven years, an additional 5 percent is eliminated. In total, the reduction benefit allows investors to potentially exclude up to 15 percent of the original gain from taxation. 

3. Exclusion
If the investment in the QOF is held for at least 10 years, any appreciation on the investment can be permanently excluded from taxation at the election of the taxpayer. If the QOF sells any of its assets, an investor with a 10-year hold can additionally exclude their share of any resulting capital gain on the asset sale.

Who can participate

Individuals, C Corporations (including regulated investment companies and real estate investment trusts), Partnerships, S Corporations, and Trusts or Estates are all eligible to invest capital gains into a QOF to realize the tax benefits of participation.

This program was created with the 2017 passage of the Tax Cuts and Jobs Act which established two new Internal Revenue Code (IRC) sections: IRC sections 1400Z-1 and 1400Z-2. IRC section 1400Z-1 governs Opportunity Zones and IRC section 1400Z-2 governs Opportunity Funds. 


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