One of the most interesting wrinkles of the Tax Cuts and Jobs Act, passed last December, was the creation of Opportunity Zones.

According to the IRS, Opportunity Zones are particular distressed communities throughout the country in need of economic revitalization. Under a nomination process completed in June 2018, 8,761 communities in all 50 states, the District of Columbia, and five U.S. territories were designated as qualified Opportunity Zones. Investing in an Opportunity Zone can provide substantial tax benefits to an investor, namely deferral on capital gains tax. Investors may defer tax on almost any capital gain until Dec. 31, 2026 by making an appropriate investment in a zone, making an election after December 21, 2017, and meeting other requirements.

Generally, to qualify for deferral, the amount of a realized capital gain to be deferred must be invested within 180 days into a Qualified Opportunity Fund (QOF), which must be an entity treated as a partnership or corporation for Federal tax purposes and organized in any of the 50 states, D.C. or five U.S. territories for the purpose of investing in qualified opportunity zone property.

The QOF must hold at least 90 percent of its assets in qualified Opportunity Zone property. Investors who hold their QOF investment for at least 10 years may qualify to increase their basis to the fair market value of the investment on the date it is sold, which would effectively eliminate any capital gains tax on the post-purchase appreciation. Hold the QOF investment for 5 years prior to the earlier of the date you sell the investment, or December 31, 2026, and the taxable portion of the capital gain rolled into the QOF is reduced by 10%. Increase the holding period to 7 years and your gain exclusion jumps to 15%. Any realized capital gains rolled into a QOF will be taxable to you in 2026, reduced by either 10% or 15% based on the number of years the QOF was held. Here is a list of FAQs regarding Opportunity Zones published by the IRS: OPPORTUNITY ZONES FOR MA RESIDENTS

Massachusetts residents may be interested to know that in May 2018, Governor Baker’s formal recommendation of 138 Opportunity Zones were all approved by the U.S Treasury Department. Here is a link to that press release, in additional to the list of approved Opportunity Zone municipalities in the Commonwealth.