How Popular Will Opportunity Zones Be?

There is a lot of buzz about the potential for Opportunity Zone Funds—a new program that allows investors to defer capital gains taxes by investing in Opportunity Zone funds, which invest in designated under-developed areas. Although guidance about the rules around the program have only just rolled out from the IRS, investors are already showing tremendous interest. David Alvarado, a partner at CGS3, says that clients are calling daily to learn more about Opportunity Zone Funds and how to invest. Alvarado recently moderated panel Investing in Opportunity Zones at the UCLA School of Law.

“Key reasons this new legislation is triggering such an emphatic response [include] fund managers’ cost of capital is essentially being lowered through the tax incentives afforded to investors; many of the Opportunity Zones are in areas very attractive to investors; non-real estate investors who previously had no outlet to unlock built capital gains now have one; and Opportunity Zones come with very few conditions,” Alvarado tells GlobeSt.com.

The tax deferral benefits are significant and grows with time. “If the resulting investment is held for five years, 10% of that original capital-gains liability is written off; and if held for seven years, 15% of that original capital-gains liability is written off,” says Alvarado. “In addition, if the investment is held for more than ten years, any associated capital gains tax due on gains during that decade is eliminated.”