WTF is a Qualified Opportunity Zone?

Welcome back to my WTF (What the Finance) series!


Are you experiencing FOMO because all your friends are talking about investing in Qualified Opportunity Zones at parties and you aren’t in the action?  Probably not.  But, if you want to be the smarty pants friend at the hoe down, here is a very basic primer on Qualified Opportunity Zones.


First, a very handy (thank you Investopedia!) definition:  “Opportunity zones are particular geographic areas that have been designated as economically distressed. As a result, these areas may be subject to different economic regulations than other regions in the country or state.”


More info from the IRS:  “QOZs are designed to spur economic development by providing tax incentives for investors who invest new capital in businesses operating in one or more QOZs.”


Basically, a person or business can invest money in an economically distressed area and get some tax benefits for it.  Hopefully you would also make a profit.  But, like all investments, you could lose money, too.


Things to know:

  1. You can roll profits from the sale of another asset into a Qualified Opportunity Zone fund without paying taxes on the sale of the first asset. At first.  Also, you have 180 days to place the profits from the investment you sold into the new QOZ fund.
  2. If you hold the investment for more than 5 years, you get a 10% step-up in cost basis for the profits you are sheltering.
  3. By December 31, 2026, you must pay the deferred capital gains tax at whatever the tax rate is at that time.
  4. There are TONS of tax rules to follow, so don’t try this at home with your Quicken software.Professional tax advice is a must.


Who might invest this way?

  1. Corporations looking to market their ESG credentials by investing in economically depressed areas.
  2. Individuals looking to kick the tax can down the road (and possibly pay less taxes) on the sale of a profitable investment.
  3. Individuals or corporations who can afford to tie up investments for a long period of time.


Like all new investments, Qualified Opportunity Zone funds seem to be geared toward the ultra-wealthy, but in time, they may be more available to the mass-market.  In the meantime, consider something more interesting to talk about at dinner parties.  Turns out, this is a bit of a snooze.



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