Federal Opportunity Zone Tax Benefits

Overview

The federal Opportunity Zone program was designed to encourage private investment in rebuilding American cities. Eligible investors who make qualifying investments can benefit from significant federal tax advantages — as outlined below.

How Opportunity Zone Tax Benefits Work

Deferral of capital gains taxes. If investors move any realized capital gains into a qualified Opportunity Zone Fund within 180 days of the asset sale, they can defer paying capital gains taxes on that gain until December 31, 2026 — or until they sell their Opportunity Zone Fund investment, whichever is earlier. 

Potential reduction of deferred capital gains tax liability. Not only can Opportunity Zone (OZ) investors defer their capital gains taxes, but they may also be able to minimize, or even eliminate, those taxes under certain circumstances.

  • If an investor holds their Opportunity Zone Fund investment for at least 5 years prior to December 31, 2026, they can reduce their deferred capital gains tax liability by 10% through a step-up in basis. 
  • If an investor holds their Opportunity Zone Fund investment for 7 years prior to December 31, 2026, they can reduce their deferred capital gains liability by another 5%. 
  • If an investor moved their capital gains into a qualified Opportunity Zone Fund in 2019 and held that investment for 10 years total, they could pay zero dollars in capital gains taxes on any appreciation from their original Opportunity Zone Fund investment. That is because Opportunity Zone Fund gains earned from Opportunity Zone investments can qualify for a step-up in basis at year 10. 

This 10-year period is initiated when the gains are placed into the Opportunity Zone Fund. Therefore, they can run from 2019 through 2029 or can be initiated as late as June 30, 2027 (180 days after the final possible date of qualified gains realization upon asset sale by December 31, 2026) as long as the investment is held in the Opportunity Zone Fund until at least June 30, 2037.

The tax benefit sunsets on December 31, 2047 to allow for an investment beyond 10 years if an investor so chooses.

Contact

For more information on how these tax benefits affect your personal situation, please contact your tax advisor. For information about Connecticut’s Opportunity Zones, please visit CTOpportunityZones.com or contact Cowlis Andrews, Program Manager, at (860) 500-2425 or cowlis.andrews@ct.gov.