“Eligible taxpayer” with “eligible gain” (generallycapital gain) that invests in an QO Fund within 180days and makes an election under IRC §1400Z-2(a)(1), is entitled to:1. Defer gain until the earlier of 12/31/26 and the sale of the QO Fund investment,2. Reduce gain amount by 10% if the QO Fund is held for 5 years or by 15% if held for 7 years, and3. Pay no tax on gain that accrues during ownership of the QO Fund if the QO Fund is held for ten years.Qualified Opportunity Fund “QO Fund”Defined as, A corporation or partnership organizedfor the purpose of investing in qualified opportunityzone property “OZ Property” that holds at least 90%of its assets in OZ Property.Qualified Opportunity Zone Property “OZ Property”Defined as, (i) qualified opportunity zone stock “OZStock”; (ii) qualified opportunity zone partnershipinterest “OZ Partnership”, and (iii) qualifiedopportunity zone business property “OZ BusinessProperty”Qualified Opportunity Zone Business “OZ Business”Defined as: A trade or business,1. in which substantially all (i.e., 70%) of tangible property owned or leased is OZ Business Property (determine by substituting “entity” for QO Fund),2. satisfies the requirements of paragraphs (2) (i.e., 50% of income from active business), (4) (i.e., substantial portion of intangible property used in active business), and (8) (i.e., less than 5 percent of the property is attributable to certain investments), of §1397C(b), and3. which is not described in §144(c)(6)(B) (i.e., excludes certain types of businesses).Qualified Opportunity Zone “O Zone”Defined as, A population or census tract that is a low-income community that is properly designated as aqualified opportunity zone under IRC §1400Z-1Equity investment ofeligible gainEligibleTaxpayerQOFundOZStockOZPartnershipOZ BusinessPropertyOZ Stockmeans any stock in a domesticcorporation if,1. Acquired after 12/31/17 at original issue,2. At time stock issued, corporation was an OZ Business, and3. During substantially all (i.e., 90%) of the QO Fund’s holding period, such corporation qualifies as an OZ Business.OZ Partnershipmeans any capital or profits interestin a domestic partnership if,1. Acquired after 12/31/17 from partnership for cash,2. At time ownership issued, partnership was an OZ Business, and3. During substantially all (i.e., 90%) of the QO Fund’s holding period, such partnership qualifies as an OZ Business.OZ Business Propertymeans tangible property used in atrade or business of the QO Fund if,1. Acquired after 12/31/17 by purchase (as defined by §179(d)(d)),2. The original use of such property in the O Zone commences with the QO Fund or the QO Fund substantially improves the property, and3. During substantially all (i.e., 90%) of the QO Fund’s holding period for such property, substantially all (i.e., 70%) of the use of such property was in an O Zone. See Regs. for details.LegendOwnership / structural holdingTransfer of stock / cash / assets

Opportunity Zone Summary Explained

Sections 1400Z-1 and 1400Z-2 let an “eligible taxpayer” with “eligible gain” (generally capital gain) elect deferral by reinvesting that gain in a Qualified Opportunity Fund (“QO Fund”) within 180 days and making an election under § 1400Z-2(a)(1). The taxpayer’s equity investment of eligible gain flows into the QO Fund, which in turn holds qualified opportunity zone property.

The elected benefits are three-fold: (1) the deferred gain is recognized no later than the earlier of December 31, 2026 or the sale of the QO Fund investment; (2) the amount of deferred gain is reduced by 10% if the investment is held for 5 years, or by 15% if held for 7 years; and (3) post-investment appreciation escapes tax entirely if the QO Fund interest is held for at least ten years.

A QO Fund must be a corporation or partnership organized to invest in qualified opportunity zone property (“OZ Property”) and must hold at least 90% of its assets in OZ Property. OZ Property is defined as (i) qualified opportunity zone stock (“OZ Stock”), (ii) a qualified opportunity zone partnership interest (“OZ Partnership”), or (iii) qualified opportunity zone business property (“OZ Business Property”).

Each category carries its own acquisition and use requirements — the interest or property must generally be acquired after 12/31/17, the underlying entity must be an OZ Business, and during substantially all (90%) of the QO Fund’s holding period the entity must qualify as an OZ Business or the property must be used in an O Zone. An “O Zone” is a low-income community census tract designated as a qualified opportunity zone under § 1400Z-1.

Key Takeaways

Three stacked benefits

An electing taxpayer defers eligible gain until the earlier of 12/31/26 or sale, reduces it by 10% (5-year hold) or 15% (7-year hold), and pays no tax on post-investment appreciation after a ten-year hold.

180-day reinvestment window

The election under § 1400Z-2(a)(1) is available only if the eligible gain is invested in a QO Fund within 180 days, and the benefit generally requires capital gain as the source.

The 90% asset test

A QO Fund must be a corporation or partnership that holds at least 90% of its assets in OZ Property — OZ Stock, an OZ Partnership interest, or OZ Business Property.

Post-2017 acquisition & OZ use

Each form of OZ Property must generally be acquired after 12/31/17, and during substantially all (90%) of the QO Fund’s holding period the entity must remain an OZ Business or the property must be used in an O Zone.

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