Top 3 Tax Details You Should Know About Opportunity Funds

The word “opportunity’ to an investor is certain to get the juices flowing, and Opportunity Funds, as a relatively new investment model, are certainly eliciting their share of attention. Precisely because of the lack of history as an investment and due to the rather spontaneous manner in which some of them appear in the market, Primior strongly advises the serious potential investor spend a little more time on due diligence. Begin with understanding these three tax details you should know about Opportunity Funds.

You must realize a capital gain to invest in an Opportunity Fund

The first step involves moving capital gains from the sale on an asset into an Opportunity Fund within 180 days of the sale of that asset. By so doing, you can defer the gain on the sale until December 31, 2026 or until the Opportunity Fund investment is sold.

An Opportunity Fund investor sees some tax incentives immediately, but the greatest extent of tax incentives are enjoyed by the long term investor

Deferring for any amount of time paying capital gains tax puts more money in the investor’s hands and is a powerful tool in and of itself. But if an investor keeps the investment in the Opportunity Fund for at least five years prior to the December 31, 2026 deadline, he or she will be able to reduce the deferred tax liability by 10 percent through a step-up basis. The investor who retains the investment for seven years prior to the deadline will be able to reduce tax liability by 15 percent.

The capital invested in an opportunity fund can grow tax-free

If the funds remain in the Opportunity Fund for at least 10 years, there will be no capital gains tax due at the time of sale. For an in-depth overview on how all or part of an otherwise taxable gain can be deferred, visit the IRS’ web page, Opportunity Zones Frequently Asked Questions,

If you are an investor who is contemplating reinvesting gain for at least 10 years, it may be possible to potentially double your after-tax return by investing in an opportunity fund versus a traditional investment.  Of course, this assumes that the opportunity fund and the traditional investment in consideration would have performed similarly over the time period contemplated.

While it may be tempting to wish to invest in a specific community that looks for revitalization and earns a good return on your money at the same time, Opportunity Funds are complex and are not for every investor. We at Primior operate around the globe with expertise, integrity, and cutting-edge technology to provide you the best financial and investment services possible.

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