Opportunity Zones 101

If you prefer to listen check out our video post.

Opportunity Zones have been the buzz of the economic and investment communities since 2018. With more IRS regulations and influencers making them popular in 2019 we thought discussing how this new tax policy could help build the next Black Wall Street would be appropriate. For those that don’t know, Black Wall Street was a thriving and self sufficient community in Tulsa Oklahoma from around 1897- 1921. In 1921 it was burnt down and destroyed. 

Opportunity Zones could provide the necessary capital to rebuild a Black Wall Street or several like communities across the nation because they give tax breaks to long term investors. This will be a three part blog series with each blog post also having an accompanied video. First we will dive into what an Opportunity Zone is and the basics on how it works. Then we will discuss the general pros and cons of Opportunity Zones. Lastly we will walk through how they might be useful in building the next Black Wall Street.

What are Opportunity Zones?

Opportunity Zones as defined by the IRS are Economically Distressed census tracts that are chosen by the Governor of each State and US Territory. More simply put these are low income under resourced communities. The goal of the Opportunity Zone policy is to bring investment and development funds to the communities that need it most. You can use this link to look at Opportunity Zones across the nation.

https://esrimedia.maps.arcgis.com/apps/View/index.html?appid=77f3cad12b6c4bffb816332544f04542

What are the Benefits of Opportunity Zone Investing?

The real power behind this new tax policy is the ability of investors to defer their capital gains tax. According to Investopedia a capital gain is an increase in the value of a capital asset—either an investment or real estate—that gives it a higher value than the original purchase price. An investor does not have a capital gain until an investment is sold for a profit. 

Put simply if you buy a house for $200,000 and you sell your house for $300,000 you have a capital gain of $100,000. Now there already exists a 1031 exchange that will allow you to roll your capital gains from one real estate deal into another like real estate deal to avoid capital gains tax. But let’s say you bought some stock in 2008 for $2000 and that stock is now worth $10000. Normally you would have to pay taxes on that gain come tax season. With this new policy you can invest that capital into an Opportunity zone, the longer you keep you money invested the more tax benefits you get. So info graphic below.

Part 1 Conclusion

Opportunity Zones are an incredibly powerful tool to defer your capital gains tax. We hope this part 1 blog helped to introduce you to or simplify what opportunity zones are. Please check out some of the Frequently Asked Questions the IRS has provided answers for on their website.If you are interested in learning how you can invest in opportunity zones check out part 1.5 in this series.

Be sure to tell people about this information and take the time to see how you might be able to profit from this policy! As always, be sure to consult your tax or finance professional before making any investments.

We Will Rebuild.