Opportunity Zone Magazine Opportunity Zone Magazine Volume 1, Issue 1 | Page 84
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OPPORTUNITY ZONE MAGAZINE | VOLUME 1
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ISSUE 1
Common Misconceptions
Surrounding the
Opportunity Zone Initiative
By J. Dana Tsakanikas
Learn facts from rumors when it comes to Qualified Opportunity Funds, tax benefits,
deployment of investments, qualifying requirements and timeframes of investments.
B
efore going into what the program does not do,
let’s discuss what it does do. The program was the
brainchild of successful Silicon Valley entrepreneurs
(with bipartisan support in Congress), to tap and unlock the
tremendous amount of capital gains currently “trapped” in
existing investments in the U.S. (as high as $6 trillion by
some estimates), and encourage those wealthy individuals to
reinvest those private dollars into areas of the U.S. that are in
need of redevelopment or reinvestment.
To that goal, it allows those individuals to sell their positions
in existing investments and reinvest those proceeds into QOZ
projects in lower income neighborhoods. The incentive is
that the investor can defer the tax on that initial gain on sale
of the existing investment until 2026, or obtain a step-up in
basis of that initial gain, and most of all benefit from tax-free
gains on such new investment after 10 years.
For the developer, it allows them to underwrite projects to
initially lower rates of return, because of the value of the
tax-free dollars that the project could realize upon exit after
10 years. So, take for example a developer that expects
(for example purposes only) a 12 percent return for a real
estate project. However, due to the rents in a QOZ, the
project only generates an 8 percent return currently. The
developer understands that, while it would otherwise be too
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