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Opportunity Zones Create Capital Gains Tax Benefits for Economic Development

The federal Tax Cuts and Jobs Act of 2017 included capital gains tax benefits for investments in distressed rural and low income communities designated as opportunity zones.

Opportunity zones in Arkansas were selected by Gov. Asa Hutchinson and approved by the U.S. Department of Treasury in May 2018. Qualifying investments must be made in opportunity zone funds which are established to invest in opportunity zones.

This provides an excellent opportunity for Arkansas taxpayers to help distressed areas and foster economic development while taking advantage of tax benefits.

Investors can invest capital gains realized from other investments in opportunity zone funds and defer capital gains tax until December 31, 2026 or the date of sale, whichever is later. The tax on the realized capital gain is reduced 10% if the investment is held five years and another 5% if held seven years. If the investor holds the opportunity zone fund investment 10 years, any gain realized from that investment is 100% tax free.

It is anticipated that federal regulations to implement opportunity zones will be released as early as Q4 2018.   The regulations should include requirements to establish opportunity zone funds. Establishing a fund could be as simple as creating an entity to invest in opportunity zone projects and filing a federal form with the entity’s tax return. In this case, there will be great opportunities for a business to establish its own opportunity zone fund and manage the ultimate investment. However, it is possible that the regulations require additional regulatory compliance to establish opportunity zone funds.

For more information on this topic, contact Tim Leathers at tleathers@inveritasinfo.com.