Most financial experts call them Qualified Opportunity Funds (QOFs). They are also known as Opportunity Zones. Whatever you want to call them, there’s a good reason “opportunity” is always in the title. These new investment funds are one component of the Tax Cuts and Jobs Act of 2017 that savvy investors are using to create excellent long-term tax advantages.
Qualified Opportunity Funds were created as part of the tax overhaul as a way to encourage investment in the country’s less economically fortunate areas. Congress along with state governments put together these opportunity zones with built-in tax benefits as a way to entice investors to invest capital into these areas for economic development. Along with it comes some significant tax benefits.
Here are the primary tax advantages of Opportunity Funds:
Essentially, the number of capital gains you can eliminate and/or defer will depend on how long you stay invested in the fund. If you cash out in less than 10 years, there will be a certain percentage you can defer, along with some other caveats that you will want to discuss with your tax advisor. Theoretically speaking, there is excellent potential for a greater return on investment compared to a traditional investment. Some experts project as much as two times the potential after-tax ROI for people who stay invested in a Qualified Opportunity Fund for 10 or more years.
Many real estate investors are seeing the appeal of Opportunity Funds. As long as the investments are located in qualified low-income zones, other key criteria are met and taxes are filed correctly, certain real estate investments might be considered QOFs and allow for tax deferral of capital gains.
As with any new investment strategy, there are some pros and cons. The pros include:
The potential cons of Opportunity Funds include:
If you want to learn more about Qualified Opportunity Funds that you can invest in for long-term tax benefits, talk with your tax planner and financial advisor. Illumination Wealth is here to help you with all your important financial decisions when it comes to taxes, real estate, stocks, retirement savings and other financial planning strategies. Contact us today to get started on the road to true financial independence.