An Opportunity Zone is an economically distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. They were added to the U.S. tax code as part of the 2017 Tax Cuts and Jobs Act to encourage investment in economically distressed communities.
The governor of each state can designate up to 25 percent of the total number of eligible census tracts as Opportunity Zones. In Washington, this came to a total of 139 tracts.
The law allows taxpayers to defer recognition of capital gains that are reinvested in qualified opportunity funds until Dec. 31, 2026 and to reduce the amount of taxable gain from the investment in the qualified opportunity fund if the investment is held for a minimum of five years.
Investments in qualified opportunity funds are typically securities under both state and federal law.
The North American Securities Administrators Association (NASAA) and the Securities and Exchange Commission (SEC) recently published joint guidance summarizing compliance issues for opportunity funds under state and federal law.
The guidance addresses whether investments in opportunity funds are securities, exemptions from registration used to offer and sell interests in opportunity funds, broker-dealer registration requirements, implications under the Investment Company Act of 1940, and investment adviser registration requirements for advisers to opportunity funds.