Qualified Opportunity Zones Offer Key Tax Benefits for Investors for Year-End Tax Planning

With two months left in the year, investors may be looking for additional tax benefits as their year-end tax planning approaches. Qualified Opportunity Zones (QOZs) can be a valuable tool for investors seeking tax-advantaged investment strategies. 

Here are three key benefits that investors can take advantage of by investing in QOZs: 

1. Defer Capital Gains Tax

Investors who have realized capital gains, such as from the sale of stock, real estate or business, can defer paying capital gains tax by reinvesting those gains into an Opportunity Zone Fund within 180 days of the sale. Such eligible gains can be deferred until December 31, 2026. By reinvesting the gain into an OZ Fund, they can not only defer taxes on that gain, but also improve cash flow and have an opportunity to reinvest that gain in multiple real estate projects. 

2. Eliminate Taxes on OZ Investment Gains

If the investor holds the investment in an OZ Fund for at least 10 years, they can exclude any gains from that investment. Since there is zero capital gains tax due on any profits from the sale of an OZ investment after this 10-year period, investors can benefit from growing their portfolio with a tax-free investment, making it a highly tax-efficient strategy for wealth accumulation. 

3. No Depreciation Recapture 

One of the key benefits of an OZ investment is the elimination of depreciation recapture. When an asset depreciates over time, the yearly depreciation is typically used to offset taxable income; however, with OZ investments, the depreciation is not subject to recapture tax. When an investment includes more than one depreciable asset, this can potentially have a big impact on the returns for the investors since there is no depreciation recapture for OZ investments. 

Investing in QOZs allows investors to potentially maximize their tax benefits while diversifying their investment portfolio and helping to revitalize underserved communities. Year-end OZ investments can be a tax-smart move, offering the potential for immediate tax deferral and tax-free growth for long-term holdings. 

Stay tuned for our next blog post where we will be discussing potential changes to the OZ legislation given recent Election results. 

Pinnacle Partners has partnered with Trilogy Investments Co. to launch a new Built-to-Rent (BTR) Opportunity Zone Fund. BTR properties offer the potential of stable cash flow and long-term appreciation for investors, as these properties typically see premium monthly rental rates and lower vacancy rates than comparable multifamily properties. While there are no guarantees, we believe OZ funds offer a great opportunity for tax-conscious investors who can manage the risk and liquidity. 

Learn more about this increasingly attractive investment asset class and our Fund here.

If you would like to learn more about our new BTR OZ Fund, fill out our form below to access Fund materials. 

Past performance of Pinnacle Partners OZ Funds is not indicative of future results. There can be no assurance that the fund’s objectives will be achieved or that cash distributions will, in fact, be made or, if made, whether those distributions will be made when or in the amount anticipated or that certain tax benefits will be available to investors. An investment in the fund is illiquid, speculative, and will involve significant risks. Full details about the fund and its associated risks can be found in the fund offering documents. 

Nothing in this blog post should be construed as tax advice.  Please confer with your tax adviser to determine if an investment in an OZ fund is right for you.