Buried in the recent Tax Bill are provisions allowing substantial capital gain tax deferral and exoneration of which Forbes has said, “It’s the least-known part of last year’s tax-cut law that could be the most consequential.” The establishment of Opportunity Zone Funds has already found “Wealthy investors, fund managers and real-estate developers racing to take advantage of a tax incentive meant to spur economic growth in neglected areas.”
So far, at least 43 funds are seeking to raise $8.9 billion. Treasury Secretary Mnuchin expects at least $100 billion. And it will probably be much more.
The benefits of investment in one of the 9,000 Opportunity Zones approved by the IRS include deferral of capital gains realized from any source for up to eight years—and a complete exemption of 15 percent of the gains if investments are held seven years. But once the initial gain—that has been invested and growing tax-free—is recognized, all further increase in the value of the investment is forever tax-free.
Investors have 180 days from the realization of the capital gain to redeploy the gain into an Opportunity Fund for investment in selected urban and rural areas that meet income or poverty thresholds. There are many zones in Oklahoma City, Tulsa and surrounding areas that are ripe for investment.
Two striking differences from the familiar 1031 tax-free exchanges are the fact that capital gains from any source—stock sales, mutual fund distributions, real estate exchanges, etc.—may be redeployed in any form of Opportunity Zone investment and business; i.e., they need not be “like kind.” The second difference is that only the gain amount is subject to the benefits of the new law; the rest of the resulting cash from the transaction is free of any restriction.
In light of interest in the new law, there will be a special bonus session at the Oklahoma Tax Institute on Friday morning at 7:15 to explore the benefits and requirements of Opportunity Zone Funds. Gail R. Runnels of Holliman, Langholz & Runnels, PC will be the presenter.
Register at https://www.oscpa.com/cpe/conferences.