The Opportunity Zone program was established under the sweeping Tax Cuts and Jobs Act. The initiative created defined opportunity zones which offer significant potential tax breaks to individuals and companies who invest in selected urban and rural areas that meet income or poverty thresholds.

A key attraction

Investing in these zones allows investors to defer and reduce capital gains from other investments. The program also offers the potential for a full tax break on subsequent investment gains.

That innovation is a significant one for both communities and investors.

The law recognizes transformative steps are needed to revitalize rural communities and some urban pockets that have seen little to no economic revitalization following the 2008 financial crisis—a contrast to popular metropolitan areas that have attracted significant private investment over the past decade.

The tax law allows opportunity zones to be designated by the governors of each state from a pool of low-income, high-poverty areas identified by Census data and certified by the U.S. Treasury.

Taxpayers can invest directly in opportunity zones or in “qualified opportunity funds” that seed businesses and real estate developments in those areas. An opportunity fund is an investment vehicle organized as a corporation or a partnership that holds at least 90% of its assets in qualified opportunity zone areas.

Opportunity fund investors reinvest their capital gains from other investments—money made on the sale of an asset such as a business, real estate or appreciated stock—in the fund. It would be a long-term investment, with the largest tax benefits available to those who remain invested for at least 10 years.

More than 8,700 opportunity zones have been designated across the country, primarily in urban areas. For example, in Illinois there are 327 zones, with more than 130 in Chicago, mostly in the South and West sides of the city.

A triple tax advantage possible

  • A temporary deferral on capital gains
  • A step-up in basis
  • Permanent exclusion

William Blair is planning to offer qualified clients the option to invest in opportunity zone funds in 2019. We are carefully reviewing Internal Revenue Service guidance and a variety of opportunity fund options that will best meet clients' financial goals. For more information, contact your William Blair representative.

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