Arizona Opportunity Zones | Phoenix Opportunity Zones
In December of 2017, the “Tax Cuts and Jobs Act” was passed, establishing the Opportunity Zone program.
Opportunity Zone Program
- The program was created to increase investment by investors into specific low-income communities.
- Under the program, citizens or corporations who experience capital gains can invest that money into designated low-income areas known as Opportunity Zones.
- Doing so comes with tax benefits to the investors, and most importantly, will hopefully result in increased investment into these communities.
Tax Benefits for Investors
- Tax on the initial realized capital gain is deferred and reduced depending on the length of time the investment is held for (5 or 7 years).
- If investment is held for 10 years, capital gains made on the investment will not be taxed.
Arizona Opportunity Zones
Arizona’s Opportunity Zone nominations were submitted on March 21, 2018 and approved by the U.S. Treasury Department on April 9, 2018, making Arizona one of the first states in the nation to have its zones officially designated.
The federal Opportunity Zones program allows each state’s governor to nominate up to 25 percent of the qualifying low-income Census tracts as Opportunity Zones. It was created under a provision of the Tax Cuts and Jobs Act, which was signed into law December of 2017. Investors who reinvest capital gains monies in Opportunity Zone funds will receive reductions on capital gains taxes relative to the years of their investment:
Investments held 10 years: taxable amount of the capital gains reinvested is reduced by 15% and no tax is owed on appreciation. For example: $100 of capital gains is reinvested into an Opportunity Zone fund and held for 10 years. Tax owed on the original $100 is deferred until 2026, and taxable amount is reduced to $85 ($100 minus $15). Investor will owe $20 of tax on the original capital gains (23.8% of $85). No tax is owed on Opportunity Zone investment’s capital gain. Assuming a 7% annual growth rate, the after-tax value of the original $100 investment is $176 by 2028.*
Investments held 7 years: taxable amount of the capital gains reinvested is reduced by 15%. For example: $100 of capital gains is reinvested into an Opportunity Zone fund and held for 7 years, selling in 2025. Taxable amount is reduced to $85 ($100 minus $15). Investor will owe $20 of tax on the original capital gains (23.8% of $85). Assuming a 7% annual growth rate, the investor will owe $15 in tax (23.8% of $61) on the Opportunity Zone investment’s capital gain.*
Investments held 5 years: taxable amount of the capital gains reinvested is reduced by 10%. For example: $100 of capital gains is reinvested into an Opportunity Zone fund and held for 5 years, selling in 2023. Taxable amount is reduced to $90 ($100 minus $10). Investor will owe $21 in tax on the original capital gains (23.8% of $90). Assuming a 7% annual growth rate, the investor will owe $10 in tax (23.8% of $40) on the Opportunity Zone investment’s capital gain.*
Phoenix Opportunity Zones
Phoenix, Arizona has 42 Opportunity Zones.
These Opportunity Zones were certified by the Department of Treasury on April 9, 2018.
- October 2018 – Opportunity zones: vital community development tool or tax windfall for the rich?, Curbed
- August 2018 – Investing In Qualified Opportunity Zones, Forbes
- August 2018 – Opportunity Zones: Fundamentals, Mission Investors Exchange
- June 2018 – Opportunity zones: An innovative investment vehicle created by the TCJA, Accounting Today
- June 2018 – Q&A: How to invest in ‘opportunity zones’, Finance & Commerce
- April 2018 – Developers Celebrate Arizona’s Opportunity Zones , JD Supra
- April 2018 – Arizona’s Opportunity Zone Nominations Approved , AZ Big Media
- January 2018 – The Tax Benefits of Investing in Opportunity Zones, Economic Innovation Group
- January 2018 – What are the Tax Incentives of Investing in Opportunity Zones?, Fundrise
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