Tax Advantages of Opportunity Funds

A deep dive into how Opportunity Funds reduce taxes

To encourage capital deployment in Opportunity Zones, two main tax advantages were created:

1. Elimination - No federal taxes on profits from an opportunity fund when held 10+ years

2. Deferment and Reduction of original capital gain taxes: Not due until 2027 with a 10% reduction

Advantage 1

Elimination

If an opportunity fund investment is held for at least 10 years, there is no federal capital gains tax due on any profits from it's sale.

This is by far the biggest benefit of the opportunity zones program, and the #1 reason why Treasury Secretary Steven Mnuchin expects more than $100 billion in investments to flow to opportunity zones as a result of this program. (This ~$100 billion will push up the value of early QOZ investments.)

Advantage 2

Deferral & Reduction

Any capital gain invested into an opportunity fund within 180 days of realization will be tax deferred. This current capital gain tax obligation is reduced 10% when paid in 2027 (with inflated dollars).

An investor with capital gains from any source, such as the sale of stock, real estate, jewelry, artwork, etc. is not required to pay taxes on that gain until 2027 if it is placed into an Opportunity Fund. When paid in 2027, this original capital gain tax is reduced 10% and paid in inflated dollars. Click here for an example.

Timeline

Year 0

2019 - Investor sells an asset, places entire gain into an opportunity fund and DEFERS payment of capital gain tax

Year 8

2027 - Deferred tax on original gain is paid in April 2027 dollars and REDUCED by 10%.

Year 10+

2029+ - Sale of opportunity fund, ZERO Federal Tax Due

After-Tax Net Profit Comparison

See for yourself how much money you could gain by investing in AAAmerican Opportunity Fund versus a traditionally taxed investment.

Input Capital Gains:
Select Type:
Taxable Investment
(Stocks, Bonds, etc)
AAAmerican
Opportunity Fund
Capital Gain
$1,000,000
$1,000,000
Top Federal Tax Paid on Original Gain - 40.8%
(408,000)
-
Capital Available for a "New Investment" in 2019
$592,000
$1,000,000
Value of New Investment after 10 years
$1,124,800
$1,900,000
Top Federal Tax on 90% of Original Gain due 2027
-
(367,200)
Top Federal Tax on Disposition of New Investment in 2029
(126,806)
-
After Tax Proceeds
$997,994
$1,532,800
Less: Original Gain
(1,000,000)
(1,000,000)
Net Loss / Net Profit
-$2,006
$532,800
Taxable Investment
(Stocks, Bonds, etc)
AAAmerican
Opportunity Fund
Capital Gain
$1,000,000
$1,000,000
Top Federal Tax Paid on Original Gain - 23.8%
(238,000)
-
Capital Available for a "New Investment" in 2019
$762,000
$1,000,000
Value of New Investment after 10 years
$1,447,800
$1,900,000
Top Federal Tax on 90% of Original Gain due 2027
-
(214,200)
Top Federal Tax on Disposition of New Investment in 2029
(163,220)
-
After Tax Proceeds
$1,284,580
$1,685,800
Less: Original Gain
(1,000,000)
(1,000,000)
Net Profit
$284,580
$685,800

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Learn About Opportunity Funds

Opportunity Fund Basics
Rules & Regulations

Opportunity Zone Investment Guide

Learn about our offering and get an
overview of the Opportunity Zone Program with this guide.

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