The Opportunity Zones program offers unprecedented federal tax benefits if you invest in a census tract designated as an Opportunity Zone. You can find Arkansas’s Opportunity Zones here.
Though the Opportunity Zones are set, if you have recently realized capital gain income, regardless of where you reside, you can invest in a Qualified Opportunity Fund and take advantage of the Opportunity Zone tax incentive, provided you meet the applicable Opportunity Zone requirements.
The Opportunity Zone tax incentive rewards long-term or “patient” investments by Qualified Opportunity Fuds in Opportunity Zones.
The Opportunity Zone tax incentive has three main benefits:
Temporary Capital Gain Tax Liability Deferral:
If, within 180 days after you realize capital gain income, you (i) elect to defer the payment of the income tax on that capital gain and (ii) re-invest an amount equal to the amount of that realized capital gain income in a Qualified Opportunity Fund, then you can defer the payment of the tax on your capital gains tax until the earlier of: (i) the date on which you sell your investment in a Qualified Opportunity Fund or (ii) December 31, 2026.
Step-Up in Basis:
If you re-invest you capital gain income in a Qualified Opportunity Fund, your original basis is zero, however, if you invest on or before December 31, 2021 and hold your investment for 5 years, you can receive a 10% step-up in your basis, which excludes that amount from the capital gains on which you must pay capital gains tax on December 31, 2026.
Permanent Exclusion from Taxation:
If you re-invest recently realized capital gain income in a Qualified Opportunity Fund and pay your reduced capital gains income tax on December 31, 2026, your basis will be equal to the amount of your original investment. If you continue to hold your investment in a Qualified Opportunity Fund for an additional 5 years (i.e., for a total of at least 10 years), any gains (revenue) generated through that investment will not be subject to capital gain taxes. It is important to note that this does not apply to the initial capital gains that were reinvested in the Qualified Opportunity Fund. The permanent exclusion only applies to gains accrued from the investment in an Opportunity Fund.
In addition to the federal incentives, the State of Arkansas is one of 30 states that have conformed to the federal income tax rules for individuals. So, investor who choose to participate in a qualifying opportunity zone investment in Arkansas will enjoy the same tax benefits at the state level.
I'm a potential investor. How can Opportunity Arkansas help?
- Understanding the Opportunity Zones investment process and the Arkansas’s business landscape;
- Facilitating the search for qualified opportunity zone projects through our website;
- Facilitating connections to Qualified Opportunity Funds (QOFs), Opportunity Zones communities and other relevant institutions or organizations.
If you are interested in learning more about investing in an Opportunity Zone, please contact us.