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Tax Benefits of Investing in Opportunity Zones

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Many an investor will think twice before getting into projects benefiting low-income or countryside communities as experience dictates that doing so may translate to profit loss. However, with the federal government’s installation of Opportunity Zones (OZ) especially in some areas of St. Louis, MO,this may be a path to reconsider.

The OZ initiative was created with the Tax Cuts and Jobs Act of 2017. This was designed to provide assistance to distressed urban and rural communities in the State of Missouri. Under this initiative, investors who are interested in injecting funds into these distressed/rural communities will be given incentives to sweeten the pot. In recent developments,there are now plans to roll it out in 50 states this year.

How it works

Each state is required to nominate blocks of low-income areas using the census tract, certified by the Secretary of the U.S. Treasury by the delegation of authority to the Internal Revenue Service. Through the IRS, investors can file a Form 8896 to create a Qualified Opportunity Fund. This can either be structured as a partnership or as a corporation so that they can invest in their chosen area’s real estate or directly into their businesses.

How are OZs Selected?

Here are among the many considerations for selecting an eligible community to become an OZ:

  • Identification by the federal government of 692 eligible low-income census tracts in Missouri, including 84 in the city.
  • The Governor can also nominate 161 tracts statewide.
  • Each eligible tract is evaluated based on its need for investment and its potential to attract OZ investment.

Among the 161 tracts recommended by the Governor to become OZs, 27 of these are in St. Louis. These include neighborhoods in the city’s north and south sides, as well as the Central Corridor.The primary concentration of St. Louis investment propertieswould be areas by the riverfront and north of Delmar Boulevard.


Probably the juiciest incentive that the federal government is offering investors under the Opportunity Zone program is thetax benefits. According to a J January 2018 report prepared by the Economic Innovation Group, these are:

  • Temporary deferral of inclusion in taxable income for capital gains reinvested in an Opportunity Fund. The gain must be recognized on the earlier of the date that the opportunity zone investment is disposed or on December 31, 2026.
  • Step-up in basis for capital gains reinvested in the Opportunity Fund. Basis is increased by 10% if the investment is held for at least 5 years and by another 5% if held for at least 7 years.
  • Permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in an Opportunity Fund held for at least 10 years. This only applies to gains that were accumulated after investing in an Opportunity Fund.

It’s worth noting that OZ investments are equity investments, not debt investments. Debt financing cannot be provided without ownership. But with the Opportunity Fund, there is ownership of the business or project that is being invested in. This can be incorporated with commercial real estate tenant representation, wherein the focus of the agent is solely on the needs of a tenant rather than being tied to a landlord.

There’s so much more to learn about investing in OZs. To better understand its nuances, it’s best to inquire from the leading real estate experts in commercial real estate investments —the Cardinal Realty Group.Schedule your consultation with them at 636.225.0385 or send them an email at Hal(at)CardinalRealtyGroup(dotted)com