Opportunity Zones
QOZ Investment Benefits:
The following table compares two potential investments using the same $1 million pre-tax capital gain; one is a traditional, taxable investment, and the other is a QOZ investment.
After 10 years, the QOZ investment receives an after-tax return that is 50% higher than the traditional investment over the same time period.
Reinvest capital gains
Reinvest capital gains into a QOZ vehicle within 180 days of realization. Defer taxes on those original gains for 5 years.
Reduce taxes
After 10 years, eliminate taxes on capital gains the QOZ vehicle generates.
Strengthen returns
Boost after-tax return by more than 50%*
Significant Benefit to After-Tax Returns* | Traditional Investment ($) | QOZ Investment ($) |
---|---|---|
Capital Gains from Sale of Original Investment | $1,000,000 | $1,000,000 |
Capital Gains Taxes Due @ 23.8%** | (238,000) | - |
Reinvestable Capital Gains | 762,000 | 1,000,000 |
Deferred Tax Due in 2027 @ 28.0%*** (Includes 10% step-up for QOZ investments held at least five years) | - | (280,000) |
Total Return on Invested Capital at 10-Year Hold* | 1,241,218 | 1,628,895 |
Capital Gains Taxes Due in 10 Years @ 28.0%*** | (347,541) | N/A |
Total Return (after-tax) | $893,677 | $1,348,895 |
Multiple on $1 million Gain (after-tax) | 1.89x | 2.35x |
This table is for illustrative purposes only and does not reflect an actual investment. The amounts shown are not net of fees and carry in either the traditional investment or the QOZ investment. This is to illustrate the tax benefits of the QOZ investments prior to any fee structures. SOURCE: https://www.irs.gov/newsroom/opportunity-zones
*50%+ higher projected returns assuming 5% annual investment appreciation and eliminating tax liabilities after 10 years.
**23.8* tax reflective of current capital gains tax (20.0%) + net investment income surtax rate (3.8%).
***Combined 28.0% tax reflective of proposed increase to long-term capital gains tax (from 20.0% to 25.0%) by Biden Administration + net investment income surtax rate (3.0%).
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