The Opportunity Zone program, established by the Tax Cuts and Jobs Act of 2017, provides tax incentives for investors to invest in distressed communities designated as Opportunity Zones by the government. Many investors are interested in this program but may be unsure about the key dates and deadlines in 2020. Here is a quick overview of the Opportunity Zone investment timeline and milestones in 2020 that investors should know.
December 31st 2019 – Deadline for investors to invest capital gains into a Qualified Opportunity Fund
December 31st 2019 was the last day for investors to invest eligible capital gains into a Qualified Opportunity Fund (QOF) and still receive the full tax benefit from the program. Capital gains up to that date could be deferred from taxes until 2026 by reinvesting them into a QOF. Any capital gains accrued after December 31st 2019 do not qualify for the full tax advantages. This was a key deadline for investors looking to maximize the tax benefits from the Opportunity Zone program.
2020 – 5 year holding period for maximum gain exclusion
To receive the full capital gains tax exemption on their investment returns, investors need to hold their investment in a QOF for at least 5 years. For investments made in 2015, the first year of the program, this 5 year mark was reached in 2020. Investors who invested in QOFs in 2015 and held their investment for 5 years can now sell their interest and exclude any capital gains made on their QOF investment from their taxes.
2020 – Deadline for QOFs to have 90% of assets in Qualified Opportunity Zone Property
By the end of 2020, Qualified Opportunity Funds are required to have at least 90% of their assets invested into Qualified Opportunity Zone Property. This includes equity interests in businesses and tangible property located in an Opportunity Zone. Failure to meet this threshold could result in penalties, so 2020 marked an important deadline for QOFs to ramp up their investments in Opportunity Zones.
December 31st 2020 – Deadline for maximum capital gains deferral
December 31st 2020 is the last date that investors can invest capital gains into a QOF and defer paying taxes on those gains until 2026. Any capital gains realized after this date would have to be invested in a QOF within 180 days to qualify for tax deferral. This marks the final deadline for taxpayers to take full advantage of the capital gains deferral benefit from investing in Opportunity Zones.
In summary, the year 2020 contained important deadlines for both investors and Qualified Opportunity Funds in relation to the Opportunity Zone program tax timelines and incentives. Investors needed to invest capital gains and QOFs needed to deploy investment capital into Opportunity Zones within specified periods to receive maximum tax advantages. Understanding these key dates can help investors properly utilize the significant tax benefits offered by Opportunity Zone investment.