Opportunity Zones May Be the Perfect “Opportunity” for Investment.
When it comes to real estate, the mantra is always, “Location, location, location.” Opportunity Zones are locations with the greatest growth potential for your real estate investment. Los Angeles is home to nearly 300 census tracts classified as Opportunity Zones. These zones have been created to attract private investment and are chosen based on neighborhood demographics such as poverty and other distress factors.
Not only would you be investing in a distressed neighborhood, but you would also receive tax advantages with your purchase. In Los Angeles, you have plenty of Opportunity Zones to choose from, but you should know a few things about them first.1. Understanding the Definition of Opportunity Zone
According to the IRS, an Opportunity Zone is “an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment” (QOF). Opportunity Zones were designed to encourage private investment--generally in economically distressed, low-income census tracts--through capital gains tax incentives. Investors and entrepreneurs are able to explore diverse Opportunity Zone investment options intended to benefit these distressed communities. With many Opportunity Zones based in or adjacent to growing neighborhoods, there are many prospective properties available for investors.
2. What is a Qualified Opportunity Fund (QOF)?
Funds used to invest in an Opportunity Zone are part of a QOF. The tax advantages allow capital gains taxes to be deferred. To qualify for deferral, the amount of a capital gain to be deferred must be invested in a Qualified Opportunity Fund (QOF). At least ninety percent of funds in a QOF must be invested in Opportunity Zones. Deferring capital gains taxes allow you to realize more of your profit.
3. How to Find a Property in an Opportunity Zone
You are able to find a list of census tracts along with a map of census tracts identified as Opportunity Zones on the Treasury Department website. According to Fundrise, the second best-designated Opportunity Zones are in downtown and south Los Angeles, including the Arts District. Based in an adjacent or growing neighborhood, these zones are great areas that will provide tax advantages for your investment. You can qualify for an Opportunity Zone Fund by filing Form 8996, Qualified Opportunity Fund, with its federal income tax return according to the IRS.
Opportunity Zones are relatively new, as they were added to the tax code in 2017 as a result of the Tax Cuts and Jobs Act being passed in late December 2017. These zones were created to spur economic development in distressed areas.
We at The Passman Group are here to help you locate an investment property in an Opportunity Zone. Call us today!