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What Every Investor Should Know About Opportunity Funds
What are Opportunity Funds?
An Opportunity Fund is a new tax-advantaged investment vehicle created by the Investing in Opportunity Act - part of the tax reform passed in late 2017. The goal is to help spur greater private-sector investment in targeted communities across the country called Opportunity Zones.
What are opportunity zones?
Opportunity Zones are designated census tracts selected by the state and federal governments for economic development. Opportunity Zones can be found in every state and in urban, suburban and rural areas.
Why invest in an Opportunity Fund?
Qualifying investments offer three unique and compelling tax advantages - investors can defer paying federal capital gains tax from recently sold investments until December 31, 2026, reduce that tax payment by up to 15%, and pay as little as zero taxes on their Opportunity Fund investment if held for 10+ years. Investors can also help spur economic growth in historically underinvested neighborhoods.
What kind of gains are eligible for tax deferral?
Investors may defer capital gains tax on any recently sold investment – including the sale of stocks, bonds or real estate – so long as those gains are rolled over into an Opportunity Fund investment within 180 days of sale.
How can I invest?
The final tax regulations are expected before the end of 2018. In the interim, EquityMultiple is focused on identifying the right real estate partners, strategies and properties. Sign up to be notified when eligible investments become available.
How It Works
Roll over capital gains, don't pay tax on them until 12/31/2026.
Hold for 7+ years, and reduce the deferred tax you owe by 15%.
Pay $0 in taxes on an Opportunity Fund held for 10+ years.
When Amazon hits $2,000 per share, John decides to sell the 600 shares he purchased back in 2015. The sale results in a $1 million profit and $238,000 in federal tax liability. Instead of paying $238,000 in federal taxes on this sale, John invests his $1 million gain into a real estate Opportunity Fund targeting workforce housing in Opportunity Zones. Assuming an annual return rate of approximately 8.5%, the post-tax value of his investment in 2028 - after a 10-year hold - is $2 million. John’s post-tax earnings are more double than if he had invested elsewhere.
Breakdown of Key Investor Tax Benefits
Investing $1 million in pre-tax dollars instead of the $762,000 in post-tax dollars that would have been available for another type of investment.
Paying $202,300 in taxes (15% reduction) on December 31, 2026 instead of paying $238,000 in 2018.
Owing no additional federal capital gains tax on the $1 million in capital gains on the Opportunity Fund investment when it is sold after 10 years.
Download the Opportunity Zone Investor Handbook
Where are Opportunity Zones?
Opportunity Zones can be found all across the country in urban, suburban and rural areas. Drawing from governmental data sources, the map below is a powerful resource for investors and real estate firms to better understand Opportunity Zones. Use the map to see how these zones are distributed throughout the U.S. or look up a specific address to find out if falls within a designated Opportunity Zone.
How do these tax benefits impact potential returns?
It’s not about how much you make, it’s about how much you keep. Use our calculator to understand how much in potential after-tax earnings you can unlock by investing in an Opportunity Fund versus a standard stock portfolio.