Arizona Opportunity Zones

Arizona is #4

in Attracting Opportunity Fund Capital (Novogradac, August 2020)

$535 million+

destined for Arizona's Opportunity Zones (Novogradac, August 2020)


IRS eases OZ deadlines in light of COVID-19

On June 4, the Department of the Treasury and the Internal Revenue Service released a notice of changes to some rules pertaining to Qualified Opportunity Funds and their investors, in light of the Coronavirus pandemic. The changes affect:

  • The requirement that taxpayers invest in a Qualified Opportunity Fund within 180 days of realizing a capital gain to qualify for the related tax benefits.
  • The requirement that Qualified Opportunity Funds have 90 percent of their capital invested in Opportunity Zone property or businesses, a standard that is assessed twice yearly.
  • The 30-month period for a Fund or Qualified Opportunity Zone business to make substantial improvements to an Opportunity Zone property.
  • The working capital safe harbor for Qualified Opportunity Zone Businesses.
  • The 12-month reinvestment period funds have to redeploy capital.

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ARIZONA OPPORTUNITY ZONES NETWORK

Find and share information about Arizona's Opportunity Zones and Funds with our searchable, interactive database. This tool allows you to connect with experts, explore funds and find investments. 

 

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BACKGROUND

Arizona’s Opportunity Zone nominations were submitted on March 21, 2018 and approved by the U.S. Treasury Department on April 9, 2018, making Arizona one of the first states in the nation to have its zones officially designated.

 

The federal Opportunity Zones program allows each state’s governor to nominate up to 25 percent of the qualifying low-income Census tracts as Opportunity Zones. It was created under a provision of the Tax Cuts and Jobs Act, which was signed into law December of 2017. Investors who reinvest capital gains monies in Opportunity Zone funds will receive reductions on capital gains taxes relative to the years of their investment. 

 

Investments held 10 years: taxable amount of the capital gains reinvested is reduced by 15% and no tax is owed on appreciation. For example: $100 of capital gains is reinvested into an Opportunity Zone fund and held for 10 years. Tax owed on the original $100 is deferred until 2026, and taxable amount is reduced to $85 ($100 minus $15). Investor will owe $20 of tax on the original capital gains (23.8% of $85). No tax is owed on Opportunity Zone investment’s capital gain. Assuming a 7% annual growth rate, the after-tax value of the original $100 investment is $176 by 2028.*

 

Investments held 7 years: taxable amount of the capital gains reinvested is reduced by 15%. For example: $100 of capital gains is reinvested into an Opportunity Zone fund and held for 7 years, selling in 2025. Taxable amount is reduced to $85 ($100 minus $15). Investor will owe $20 of tax on the original capital gains (23.8% of $85). Assuming a 7% annual growth rate, the investor will owe $15 in tax (23.8% of $61) on the Opportunity Zone investment’s capital gain.*

 

Investments held 5 years: taxable amount of the capital gains reinvested is reduced by 10%. For example: $100 of capital gains is reinvested into an Opportunity Zone fund and held for 5 years, selling in 2023. Taxable amount is reduced to $90 ($100 minus $10). Investor will owe $21 in tax on the original capital gains (23.8% of $90). Assuming a 7% annual growth rate, the investor will owe $10 in tax (23.8% of $40) on the Opportunity Zone investment’s capital gain.*

 

*Source: Economic Innovation Group, 2018


CONTACT

If you have additional questions regarding Arizona’s Opportunity Zones, please contact us at aoznetwork@azcommerce.com.