Opportunity Fund Investing

Example #2 -

$100,000 capital gain invested in opportunity fund doubles in value after 8-year holding period

In the first example, the investor took full advantage of the opportunity zones tax regulations by holding his/her opportunity fund for a full 10 years. This allowed the investor to pay no tax on his subsequent $100,000 gain.

In our second example, let’s make all of the same assumptions, except change the investor’s holding period from 10 years to 8 years. The investor now sells his/her share in the opportunity fund on December 31, 2026 for $200,000.

The investor still receives the 15 percent step-up in basis on the original investment and pays $17,000 in capital gains tax on April 15, 2027. However, since the investor did not hold the opportunity zone investment for the full 10 years, he/she owes tax on any gain in the fund. In this example, this is a subsequent gain of $100,000. Therefore, the investor would owe an additional $20,000 in capital gains tax on April 15, 2027, for a total amount owed of $37,000. The savings from the opportunity zone investment is just $3,000, instead of the $23,000 in savings from the first example.

Review Example #3