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Aaron Leak Quoted in Accounting Today Article


What Are Opportunity Zones?

According to the IRS website, “Opportunity Zones are an economic development tool that allows people to invest in distressed areas in the United States. Their purpose is to spur economic growth and job creation in low-income communities while providing tax benefits to investors. Opportunity Zones were created under the Tax Cuts and Jobs Act of 2017. Thousands of low-income communities in all 50 states, the District of Columbia and five U.S. territories are designated as Qualified Opportunity Zones. Taxpayers can invest in these zones through Qualified Opportunity Funds.”

Capital Gains Taxes

One perk to wealthy investors, a 15% reduction in capital gains tax that is deferred on dollars poured into [an Opportunity Zone] fund, already disappeared for investors who jumped in after 2019. Now it’s only a 10% reduction, and it’s available only if investors who didn’t buy in 2019 or earlier invest by the end of this year.

Regardless of when an investor gets into a fund, their skinnier, postponed tax bill comes due at the end of 2026. The third benefit, the biggest of them all, isn’t going away until 2027. It allows investors who hold onto their stakes for at least 10 years to avoid all capital gains tax on the fund’s profits — a perk dubbed “the tax incentive of a lifetime.”

Biden’s Tax Proposal

President Joe Biden’s proposal nearly doubles the current capital gains rate, now 23.8%, for high-net -worth investors. The administration wants a 43.8% rate to kick in once an investor has $1 million in taxable income. (Some experts think things may instead settle around 25% to 28% once Congress gets through haggling.)

Aaron Leak Weighs In

“Some [Opportunity Zone] funds have structured themselves so that they can refinance any debt they take on to give cash to investors to pay their deferred tax bills,” says Aaron Leak, the founder of ECL Private Wealth Management, a hybrid RIA and broker-dealer serving the Chicago/Rockford & Dallas/Ft. Worth areas.

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