Many investors assume that buying property in an Opportunity Zone (OZ) automatically provides a tax break. Unfortunately, that’s not the case. To benefit from OZ incentives, you must invest through a Qualified Opportunity Zone Fund using capital gains. Let’s break down the rules and the real tax benefits.
Why You Need a Qualified Opportunity Zone Fund
You cannot simply purchase property in an OZ and expect a tax break. Only a fund structured to accept equity capital derived from capital gains qualifies. Without capital gains to contribute, there’s no fund, and no immediate OZ tax benefit.
Short-Term Benefits
- 5-Year Capital Gains Deferral: Defers taxes on contributed capital gains starting in 2027.
- Discount on Deferred Gains: After holding the fund 5 years, investors can reduce deferred capital gains by 10% (or 30% for rural OZs).
Long-Term Benefits
- 10-Year Exclusion: Hold OZ property for 10 years and pay no capital gains on the sale, including depreciation recapture. This is where the real savings occur, making it a powerful long-term strategy.
Key Takeaways
- Don’t assume buying OZ property equals a tax break.
- Only capital gains invested in a Qualified OZ Fund qualify.
- Short-term benefits exist, but the real reward is long-term.
Invest wisely and let your Opportunity Zone investment work for you over the long haul.
Next Steps
I break down these changes in plain English in my latest YouTube Short. If you’ve been curious about Opportunity Zone Funds—or you’re wondering how the new rules could affect your tax strategy—you’ll want to give it a watch.
Book a free 15-minute discovery call here!