Opportunity Zones Program to Provide Tax Benefits for Investing in Qualified Allentown Census Tracts

Michelle Reid on September 7, 2018

Opportunity Zones are low income census tracts nominated by governors and certified by the U.S. Department of the Treasury where private investors will be eligible for certain federal tax benefits. 5 of the recently certified census tracts are in the City of Allentown. The selected tracts include most of the downtown portion of the previously established Neighborhood Improvement Zone.

In order to qualify for the Opportunity Zone federal tax incentives, investors must invest through a qualified Opportunity Fund. Opportunity Funds are private sector investment vehicles that invest at least 90 percent of their capital in Opportunity Zones. The fund model will enable investors to pool their resources in Opportunity Zones, increasing the scale of investments going to underserved areas.

The Opportunity Zones program offers 3 federal tax benefits for investing through a qualified Opportunity Fund:

  • temporary tax deferral for capital gains reinvested in an Opportunity Fund. The deferred gain must be recognized on the earlier of the date on which the opportunity zone investment is sold or December 31, 2026.
  • step-up in basis for capital gains reinvested in an Opportunity Fund. The basis of the original investment is increased by 10% if the investment in the qualified opportunity zone fund is held by the taxpayer for at least 5 years, and by an additional 5% if held for at least 7 years, excluding up to 15% of the original gain from taxation.
  • permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in a qualified opportunity zone fund, if the investment is held for at least 10 years. (Note: this exclusion applies to the gains accrued from an investment in an Opportunity Fund, not the original gains).

(Source: Economic Innovation Group)

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