What are the main tax benefits for entrepreneurs investing in opportunity zones

Entrepreneurs investing in Opportunity Zones can benefit from several key tax incentives designed to encourage economic development in underserved communities. Here are the main tax benefits:

1. Temporary Deferral of Capital Gains Taxes: Investors can defer taxes on previously earned capital gains by reinvesting them into a Qualified Opportunity Fund (QOF). The deferred taxes are not due until the end of 2026 or when the investment is sold, whichever comes first
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2. Reduction in Capital Gains Taxes: If the investment in the QOF is held for at least five years, investors receive a 10% step-up in basis on the original capital gains, effectively reducing the taxable amount. This increase goes up to 15% if the investment is held for at least seven years
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3. Permanent Exclusion of New Gains: For investments held for at least ten years, investors can exclude any capital gains realized from the QOF investment from federal taxes. This means that any appreciation on the investment made within the Opportunity Zone is tax-free
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These incentives provide significant tax advantages for entrepreneurs and investors, making Opportunity Zones an attractive option for those looking to invest in or start businesses in these areas. By leveraging these benefits, entrepreneurs can potentially increase their after-tax returns while contributing to economic growth and job creation in low-income communities.