Many investors hold sizable unrealized capital gains in stocks and mutual funds alone. To improve the profitability of these resources, various Low-Income Census tracts, five of which are located in Collier County, were designated as qualified Opportunity Zones by the federal Tax Cut and Jobs Act of 2017.
Investors in these zones can defer capital gains taxes while supporting distressed communities through private equity investments in businesses and real estate ventures. The incentive is a deferral, reduction, and potential elimination of certain federal capital gains taxes depending on how long the investment is held.
The five designated areas in Collier County are:
- Three census tracts in and around Immokalee, from Lake Trafford to the west to the county line to the east
- The Naples Manor community west of Collier Boulevard, north of U.S. 41 East and south of Rattlesnake Hammock Road
- Land in Golden Gate, west of Collier Boulevard, south of Golden Gate Parkway and east of Santa Barbara Boulevard
The Tax Cuts and Jobs Act included a new federal incentive—Opportunity Zones—meant to spur investment in undercapitalized communities. Any corporation or individual with capital gains can qualify. The program provides three tax benefits for investing unrealized capital gains in Opportunity Zones:
- Temporary deferral of taxes on previously earned capital gains. Investors can place existing assets with accumulated capital gains into Opportunity Funds. Those existing capital gains are not taxed until the end of 2026 or when the asset is disposed of.
- Basis step-up of previously earned capital gains invested. For capital gains placed in Opportunity Funds for at least 5 years, investors’ basis on the original investment increases by 10 percent. If invested for at least 7 years, investors’ basis on the original investment increases by 15 percent.
- Permanent exclusion of taxable income on new gains. For investments held for at least 10 years, investors pay no taxes on any capital gains produced through their investment in Opportunity Funds (the investment vehicle that invests in Opportunity Zones).
- To invest in an Opportunity Zone - A Qualified Opportunity Fund (QOF) may be the easiest way for most people to invest in a Qualified Opportunity Zone. The IRS defines QOFs as investment vehicles specifically organized for the purpose of investing in property located in an Opportunity Zone. A list of Florida Opportunity Zone Funds are listed here