One of the good things about real estate (and there are many) is that the government generally creates incentives for investors and developers to provide housing in certain areas.
This is the case with the fairly new “opportunity zones” initiative that launched in December of 2017 with the tax cuts and jobs act legislation. Let’s discuss what the benefits are of investing in one of these areas.
Investing in Designated Opportunity Zones
By investing in opportunity zones you can save a bunch on capital gains taxes. Similar to a 1031, but with more flexibility, you only need to designate the gains from a property into the opportunity fund.
That money obviously needs to be used to invest in one of the many opportunity zones designated by the government entities. You can see a map of opportunity zones here.
Tax Benefits of Opportunity Zone Investing
A basis step-up for capital gains reinvested in an opportunity fund
A temporary deferral of taxable income for capital gains reinvested into an opportunity fund.
A permanent exclusion of capital gains if the investment is held for at least 10 years.
For us buy hold folks that last one is very enticing as normally you will hold a rental for atleast 10 years. Capital gains being excluded permanently sounds nice to me! It’s likely a 15% savings staying in my pocket!
Tax benefits are just one of the reasons rental properties are so awesome.