Tax-Advantaged Investments

Tax-Advantaged Investments To Bring Capital To Disadvantaged Communities

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

Q3 hedge fund letters, conference, scoops etc

The Tax Cuts and Jobs Act of 2017 created a new tax-preferred opportunity that seeks to reinvigorate certain depressed communities while providing tax incentives to investors.

According to the IRS, an opportunity zone, popularly dubbed an “O-Zone,” is an “economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment.” Localities qualify as O-Zones if they have been nominated for that designation by the state, and that nomination has been certified by the U.S. Secretary of the Treasury. Investing in an O-Zone through qualified opportunity funds, or business entities that invest in tangible property within the designated zone, can allow for attractive tax benefits.

Map of areas currently designated as “opportunity zones” in the continental United States

Tax-Advantaged Investments


Investors can partially thank Sean Parker’s think tank (the Economic Innovation Group) for this potentially compelling strategy. Parker, of Napster and Facebook fame, created the policy and helped solidify it into law along with South Carolina Senator Tim Scott. The appeal reaches further than the tax incentives; O-Zone investments are generally considered impact or ESG investments because they are designed to direct capital to disadvantaged communities.

There are three main tax incentives associated with qualified opportunity fund investments:

  1. A temporary tax deferral for capital gains reinvested in an opportunity fund. The deferred gain must be recognized on the earlier of the date on which the opportunity zone investment is sold or December 31, 2026.
  1. A step-up in basis for capital gains reinvested in an opportunity fund. The basis of the original investment is increased by 10% if the investment in the qualified opportunity zone fund is held by the taxpayer for at least five years, and by an additional 5% if held for at least seven years, excluding up to 15% of the original gain from taxation.
  1. A permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in a qualified opportunity zone fund, if the investment is held for at least 10 years. (Note: this exclusion applies to the gains accrued from an investment in an opportunity fund, not the original gains).

Read the full article here by Max Meltzer, Advisor Perspectives

Saved Articles

The Life and Career of Charlie Munger

Charlie is more than just Warren Buffett’s friend and Berkshire Hathaway’s Vice Chairman – Buffett has actually credited him with redefining how he looks at investing. Now you can learn from Charlie firsthand via this incredible ebook and over a dozen other famous investor studies by signing up below:

  • Learn from the best and forever change your investing perspective
  • One incredible tidbit of knowledge after another in the page-turning masterpiece of a book
  • Discover the secrets to Charlie’s success and how to apply it to your investing
Never Miss A Story!
Subscribe to ValueWalk Newsletter. We respect your privacy.

What’s missing today for many investors is real, straightforward advice.

Especially when it comes to Value Investing and Hedge Funds. 💵

That’s what makes ValueWalk Premium different. Some would say we’re “unusual.”

Our subscribers look forward to clear, easy-to-understand information they can act on.

Sign up for  today for only a few dollars a day and get a 3 day no obligation trial with a targeted 20% discount coupon code.

Cancel anytime during trial and you are never charged.

Limited time offer: For first 50 subscribers