According to the IRS, “A QOZ is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Localities qualify as QOZs if they have been nominated for that designation by a state, the District of Columbia, or a U.S. territory and that nomination has been certified by the Secretary of the U.S. Treasury via his delegation of authority to the Internal Revenue Service (IRS).”
In Congress, political discourse took a temporary break from feuding when both sides supported creating significant tax incentives for Qualified Opportunity Zone (QOZ) investing—as part of the 2017 Tax Cut and Jobs Act. The Act was co-authored by Senators Cory Booker, a Democrat from New Jersey, and Tim Scott, a Republican from South Carolina.
The concept centers around tax incentives for those who invest capital in designated areas around the country that could benefit from economic development. The idea is to reward investors who are helping in areas where revitalization is most needed.
So why are investors flocking to Qualified Opportunity Zones or “QOZ’s” in staggering numbers?
It is because of tax breaks, of course, and significant breaks at that.
Investors are lining up for the tax benefit of deferring capital gains until 2026 and then paying them in 2027 when they are due. If held for a full 10 years, all the real estate investment gains can be 100% tax-free. That’s huge, and savvy real estate people know it. However, Congress also created a set of flexible rules, because taxpayers generally have 180 days from the date a capital gain is triggered in which they can invest that gain, or a portion thereof in a QOZ, and defer federal income tax on the gain.