Many aspects of Qualified Opportunity Zones can attract contractors and investors. But are Qualified Opportunity Zones a good investment? Keep reading to find out.
What Is a Qualified Opportunity Zone?
Qualified Opportunity Zones originate from the Tax Cuts and Jobs Act, working as an economic development aid to assist clients investing in distressed or low-income areas within the U.S., the District of Columbia, and the five U.S. territories. Lastly, they defer capital gains taxes until December 31st, 2026.
The holding period of a QOZ can range considerably; if an investor reaches ten years of ownership with a QOZ, they can permanently exclude capital gains tax from exchanges or selling. Additionally, qualifying for a QOZ, investors invest capital gains into Qualified Opportunity Funds, which involves investing in one or multiple QOZs the state or local governments consider economically distressed.
Benefits of Qualified Opportunity Zones
Qualified Opportunity Zones allow investors to defer capital gains taxes and qualify for reduction increments the longer they hold onto their investments. After five years of ownership, the investors receive a 10% reduction in gains, then an additional five percent after seven years. Lastly, after ten years of ownership, gains taxes become entirely null and void.
Qualified Opportunity Zone Risks
Qualified Opportunity Zones benefit underdeveloped markets through investment. However, there are a few potential risks that come with QOZs. Because many consider them to be long-term investments, investors must oblige to their contractual obligations and produce capital. Furthermore, failure to follow obligations can have unfavorable consequences, such as interest forfeiture.
Qualified Opportunity Zones have a considerably higher risk than some investments, as they’re relatively new with minimal operating histories. As such, there’s no guarantee you will see profits, investment returns, resale opportunities, or property appreciation. So, investors must risk potential value loss over time.
Are They Good Investments?
So, are Qualified Opportunities Zones a good investment? Qualified Opportunity Zones can provide many benefits to eager investors who want a passive income and help developing communities simultaneously. You can purchase a commercial space for its high return and tax benefits when investing in real estate. Furthermore, the longer you hold onto your QOZ property, the original investment obtains 100% tax-free gains.
While they’re still in their infancy, Qualified Opportunity Zones can benefit investors and low-income communities nationwide. Do your research and confide in a fiduciary or real estate investment specialist; they can act in your best interest and help you achieve positive outcomes.
