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Opportunity Zones

The Tax Cuts and Jobs Act created new tax benefits for investors in designated qualified opportunity zones (QOZs). These QOZ’s are certain census tracts designated by the State of Texas based on poverty thresholds provided in the tax law. A large portion of western Brazos County is within qualified opportunity zones.
 
Within these zones, investors can set up a qualified opportunity fund (QOF) and invest realized capital gains into a QOF and receive three tax benefits:
  • Deferral of capital gains tax on invested gains until the earlier of 2026 or disposition of the QOF
  • Partial forgiveness of capital gains tax on invested gains if the QOF is held for at least five years
  • An exemption for all gain upon the sale of the QOF if held for at least 10 years.
In April, the U.S. Treasury Department released a second set of proposed regulations for the opportunity zone program, which clarify the original legislation on a wide array of issues. Some key provisions in the new regulations include:
  • New rules opening up additional opportunities for QOFs to invest in operating businesses in addition to pure real estate development:
    • Relaxed rules for Qualified Opportunity Zone Businesses (QOZBs) that lease property to treat such property as eligible holdings
    • Provisions allowing investors to qualify for the tax breaks even if the businesses they fund export goods or services to a domestic market outside the zone.
  • Clarification on the original use and substantial improvement tests for investments in existing buildings
  • Long-vacant properties are immediately qualified for the tax breaks
  • Investors can buy QOF interests in a secondary transaction (not directly from the QOF) and have the interest be eligible for the tax benefits
The full news release from the U.S. Treasury Department is available here.
 
For more information on opportunity zones within the Brazos Valley, please contact the Brazos Valley EDC’s business development team.