Qualified opportunity funds

A closer look at qualified opportunity funds, and discussion on tax deferral, estate planning opportunities and other potential tax implications.

by Todd Mayo, Senior Wealth Strategist, Advanced Planning Group 20 Jan 2023
City top view

Since 2018, federal tax laws have offered meaningful incentives for investing in qualified opportunity funds. These incentives were designed to encourage investment in qualified opportunity zones, which are certain designated low-income communities.1 By investing in a qualified opportunity fund, a person who has realized capital gains potentially can defer the recognition of those gains (albeit not indefinitely), avoid tax on a portion of those gains (if they invested before 2022 and hold the investment for the requisite time), and avoid tax on post-investment gains (if they hold the investment for ten or more years).2 A web of rules govern the deferral, forgiveness, and recognition of gains in connection with an investment in a qualified opportunity fund.

Qualified opportunity fund

A qualified opportunity fund is an entity that’s organized for the purpose of investing in qualified opportunity zone property (other than other qualified opportunity funds).3 In fact, 90% or more of its assets must be qualified opportunity zone property.4 Qualified opportunity zone property generally is:

  • any qualified opportunity zone stock, which is stock in a corporation that is a qualified opportunity zone business, is acquired by the fund after 2017, and is acquired at its original issue from the corporation in exchange solely for cash;5
  • any qualified opportunity zone partnership interest, which is a capital interest or profits interest in a partnership that is a qualified opportunity zone business, is acquired by the fund after 2017, and is acquired from the partnership in exchange solely for cash;6 and
  • any qualified opportunity zone business property, which is tangible property that is used in a trade or business of the fund, is acquired by the fund acquired after 2017, and is first used in the qualified opportunity zone when the fund commences or when the fund substantially improves the property.7

A qualified opportunity zone business generally is a trade or business in which substantially all of its tangible property is acquired by the business after 2017 and is first used in the qualified opportunity zone when the business commences or when the business substantially improves the property.8

Please note: The complete publication, including important information and disclosures, can be downloaded via the link below.

IRC § 1400Z-1(a).
2 As attractive as these tax incentives may be, investing in a qualified opportunity fund involves risk and ought to be viewed first and foremost as an investment decision.
3 IRC § 1400Z-2(d)(1) and Treas. Reg. § 1.1400Z2(d)-1(a)(1)(i). A qualified opportunity fund must be classified as a corporation or partnership for federal income tax purposes, and it generally must be organized in the United States. Treas. Reg. § 1.1400Z2(d)-1(a)(1)(i) and (ii).
4 Id.
5 IRC §§ 1400Z-2(d)(2)(A)(i) and (B). See also Treas. Reg. §§ 1.1400Z2(d)-1(c)(1)(i) and (c)(2).
6 IRC §§ 1400Z-2(d)(2)(A)(ii) and (C). See also Treas. Reg. §§ 1.1400Z2(d)-1(c)(1)(ii) and (c)(3).
7 IRC §§ 1400Z-2(d)(2)(A)(iii) and (D). See also Treas. Reg. §§ 1.1400Z2(d)-1(c)(1)(iii) and 1.1400Z2(d)-2.
8 IRC § 1400Z-2(d)(3). See also Treas. Reg. §§ 1.1400Z2(d)-1(d).

Browse additional articles available from UBS Advanced Planning on topics of interest to ultra high net worth clients and their families.

Purpose of this material.
The information on this page and in the attached document is provided for informational and educational purposes only. It should be used solely for the purposes of discussion with your UBS Financial Advisor and your independent consideration. UBS does not intend this to be fiduciary or best interest investment advice or a recommendation that you take a particular course of action.

No tax or legal advice.
UBS Financial Services Inc., its affiliates and its employees do not provide tax or legal advice. You should consult with your personal tax and/or legal advisors regarding your particular situation.

Get in touch

Together, we can help you pursue what’s important

Are you a client?

Not yet a client?