Law Blog

REAL ESTATE INVESTMENT: Who can Invest in an Opportunity Zone?

Eligible Investors in QOFs

The 2017 Tax Cuts and Jobs Act established thousands of Qualified Opportunity Zones (QOZs) throughout the US.  But, who qualifies as an “investor” for the Opportunity Zone program?

These QOZs were created to spur economic growth by extending generous tax incentives to investors who invest their qualified capital gains into Qualified Opportunity Funds (QOFs).  Ultimately, the federal program open to ALL investors.

First, be aware that the investor can be either an individual or an entity.  Many people wisely hold their investments in an LLC or trust (even REITs).  That is not a problem.  Also,  the investor, whether an individual or entity, does not have to be a US citizen or US resident.

Foreign nationals can also invest in a Qualified Fund (QF).

If you do your investing through an entity, you will likely want to use that same entity as the “investor” in the QF.  However, if you may not be required to do so.

The analysis turns on the question of “Who is the taxpayor?”

If the investment vehicle you use is a “pass-through” entity, such that you report the gains/losses on your personal return, then you personally are the “taxpayor.”  In that case, you have the option.  You can either make the investment in the QF with the same investment vehicle — usually an LLC or trust–or you can make the investment in your individual name.

By contrast, if your investment vehicle is taxed as a C-corp, then that entity is itself the “taxpayor.”  So, you should use that entity as the investor in the QF.

Caveat:  In order to get into the Opportunity Zone program, you have to invest in a qualified fund (QF).  These QFs are privately owned and managed, so some of them may impose certain restrictions.  One common restriction is that you be an “accredited investor,” as defined in the tax code.  To be clear, this is not a requirement imposed by the federal program itself.  But, you may find it is a criteria imposed by managers of certain QFs

This article addresses just one specific aspect of the Qualified Opportunity Zone program.  Be sure to follow these links in order to get additinal information:

~ Jeff Harrington, Esq.