Opportunity Zone - FAQs
How do I invest in a Qualified Opportunity Zone?
The only way to invest in a Qualified Opportunity Zone is through a Qualified Opportunity Fund: “An investment vehicle that is set up as either a partnership or corporation for investing in eligible property/business that is located in an Opportunity Zone and that utilizes the investor’s gains from a prior investment for funding the Opportunity Fund.”
As of August 2018, an eligible taxpayer can self-certify to become a Qualified Opportunity Fund. However, there are many requirements to stay in compliance as an Opportunity Fund, including having 90% of the Fund assets invested in Opportunity Zones.
What are the tax advantages of investing in the Sustainable Ag Opportunity Zone Fund?
1) Temporary Deferral - Capital Gains from the sale of any asset (if reinvested in 180 days) are deferred until the sale of the new investment, or December 31, 2026, whichever is earlier.
What Capital Gains qualify?
Capital assets such as securities and other investment assets
Long-term and short-term capital gains qualify
Section 1231 gains - Trade or business property held for more than one year
Ordinary gains such as inventory gain is excluded
Section 1245 and 1250 recapture excluded
Section 751 “Hot Assets”
Unrecaptured Section 1250 gain
Section 1256 contracts
2) Step Up in Basis - Any investment reinvested and held for 5 years gets a tax basis increase of 10%, and any investment held for 7 years gets a tax basis increase of 15%.
3) Permanent Exclusion - Investments held for 10 years will pay no capital gains tax on post-acquisition gains. This permanent exclusion applies only to the gains accrued in the Sustainable Ag Opportunity Zone Fund.
How is an Opportunity Zone different than a 1031 Exchange?
Tax deferrals can be sustained indefinitely through 1031 exchanges, but in the case of Opportunity Zones, taxes on capital gains are deferred until 2026. Opportunity Zones also provide a different level of flexibility for investors. For example, you do not have to roll 100% of the proceeds of a sale into an Opportunity Zone investment. Investors may opt to deploy varying amounts of a capital gain into a new Opportunity Zone investment (though tax benefits of the program only apply to the portion of gain reinvested).
Why should I invest in an agriculture-based Opportunity Zone Fund rather than one focused on commercial real estate, hotels, etc.?
Most Opportunity Zone Funds are focused on a single asset, like commercial real estate, located in an urban area. A potential issue with these locations is that the Opportunity Zone Fund may in fact be a catalyst for gentrifying these urban areas, and will not actually benefit the existing residents of that Qualified Opportunity Zone. An agriculture-based Opportunity Zone Fund will primarily focus on suburban or rural areas, and on existing agribusinesses. These investments will enhance the quality of life for the current residence of the Qualified Opportunity Zone and may in fact increase the population due to newly available jobs.
In rural settings the infrastructure is already in place to produce and move products, and the investments help grow the local economy. These farms and ranches are able to expand and bring jobs to communities that didn’t previously have as many opportunities for work, while keeping up with the demand to feed and clothe nearly 10 billion people by 2050.
Into what types of projects will the Sustainable Agriculture Opportunity Zone Fund invest?
As a Qualified Opportunity Zone Business fund, we will invest in sustainable agriculture companies and associated value-added processing facilities. Examples include:
Regenerative soil farming such as no-till, cover crops, or organic conversions.
Controlled-environment/indoor agriculture facilities.
Humanely-raised or grass-fed livestock operations.
What risks are involved with investing in the Sustainable Agriculture Opportunity Zone Fund?
•The Fund’s business is subject to all the risks associated with the farming and agriculture business
•Investments in agriculture are speculative in nature
•Factors outside the Fund’s control that could adversely impact the Fund’s performance include, but are not limited to:
External factors such as adverse weather, disease, or infestations
Fall in agricultural land prices
Severe drop in certain commodity prices
Economic downturns at the global, national, or local level
•Timing or structure of exit from investments and the success of those investments may be adversely impacted by present or future compliance requirements
•Rules and regulations related to Opportunity Zones are still being issued and may impact the Fund negatively
•To maximize tax benefits, the Fund must maintain its status as a Qualified Opportunity Fund and investors must hold their investments in the Fund for at least 10 years
To be one of the first to know when the Sustainable Agriculture Opportunity Zone Fund opens, please fill out the form below.
See more IRS FAQs on Opportunity Zone Funds.