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Opportunity Zone Tax Incentives for Investment in Low Income Communities

Have you heard this term Opportunity Zone but not known what it refers to? An Opportunity Zone is an economically-distressed (ie. low income) community where new investments, under certain conditions, may be eligible for preferential tax treatment. Since this investment opportunity launched via the tax code by the Tax Cuts and Jobs Act on December 22, 2017, still very few people are knowledgeable on the topic, however I continue to hear of investors purchasing properties in Hawthorne and Gardena who are at the leading-edge of their peers. The purpose is clearly to encourage investors to reinvest their capital gains to develop affordable housing. Gains can come from any investment, whether that be stocks, bonds, real estate or partnership interests.

Certain distinct areas across all fifty states (identified by census tract number) qualify as Opportunity Zones if they have been nominated for that designation by the state and that nomination has been certified by the Secretary of the U.S. Treasury on behalf of the IRS (map located here ; I recommend referencing their tutorial to learn how to navigate).

There are three clear incentives for investors:

  1. Temporary deferral of capital gains reinvested in a Qualified Opportunity Fund.

  2. Taxable gain reduction of capital gains reinvested in a Qualified Opportunity Fund.

  3. Tax-free capital growth on the appreciation in the investment in the Qualified Opportunity Fund.

There are different tax basis incentives based upon how long the investment is held (5, 7 and 10+ year options) and gains deferral expiration trigger in 2026. I am not qualified to speak to any technicalities of these incentives; please refer to your accountant or appropriate expert on such matters. [source for information posted within found here.]

There are approximately 274 census tracts identified as Opportunity Zones within Los Angeles County and over 800 within California. Within greater South Bay, there are Opportunity Zones found in areas of Torrance, Gardena, Hawthorne and Inglewood, comprising 8 MLS areas.

Northeast / North Central Torrance, border of Gardena

South Lawndale, bordering Bodger Park

East Hawthorne, Lennox and South Inglewood

Affordable housing is a major issue in Los Angeles...will this help? Consideration of expenses to develop, manage and oversee a Qualified Opportunity Fund, as well as evaluating the housing value growth potential and income opportunity of the Opportunity Zone areas require diligence but will likely have many success stories and help millions of Americans live better lives. I look forward to reporting back as savvy investors focus on these developments of low income areas.

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