While investing is very attractive, some people feel discouraged by the taxes they have to pay on their investment capital gains. This makes them feel like they are not getting as much return on their investment as they were expecting.
Fortunately, there is an investment strategy that little people know about that will allow you to decrease, defer, or even get rid of paying any taxes.
This program is relatively new since it was created by the Tax Cuts and Jobs Act of 2017.
We are talking about the Qualified Opportunity Zone Program, which is a tax-advantaged investment strategy in designated communities known as Qualified Opportunity Zones.
The great thing about it is the tax benefits offered to investors.
The goal of the Opportunity Zone Program is to encourage real estate development, job creation, and economic growth. So basically it is a win-win program for you as an investor, and for communities that are part of it.
There are other benefits that come from this program, and those include a reduction in the poverty rate, an increase in the number of affordable housing units, increase in median income, and increase in homeownership.
Let’s take a look at a hypothetical scenario of how the Opportunity Zones Program would work:
Suppose you have an original capital gain of $1,000,000. Considering a 30% tax rate, you would end up with an investable amount of $700,000 after tax. With a compounded annual return of 7%, your appreciation after 10 years would be $677,006. Considering you also paid tax on the appreciation, you would end up with a total growth above the original capital gain of $ 1,173,904.
On the other hand, considering the same amount of original capital gain of $1,000,000 and being able to defer taxes thanks to the opportunity zones program, you would end up having $1,712,151 after 10 years. Basically, the opportunity zones program would, in this case, allow you to end up having $538,247 in after-tax appreciation.
There are more than 8,700 opportunity zone areas across the U.S. and since this is very new, there is so much potential at these early stages of the program. Taking on this opportunity will not only benefit you but it will also help to uplift many communities.
With U.S. taxpayers holding more than $6 trillion in unrealized capital gains, Qualified Opportunity Funds may offer a compelling option for deferring, reducing, and potentially eliminating capital gains taxes.
*Investments involve risk. Investment values will fluctuate with market conditions, and security positions, when sold, may be worth less or more than their original cost. You should always consult a financial, tax, or legal professional familiar with your unique circumstances before making any financial decisions. This material is intended for educational purposes only. Nothing in this material constitutes a solicitation for the sale or purchase of any securities. Any mentioned rates of return are historical or hypothetical in nature and are not a guarantee of future returns. Past performance does not guarantee future performance. Future returns may be lower or higher.