Currently, there are over 125 “opportunity zones” in Colorado. At least 35 of them are located in Denver and its surrounding areas.
Opportunity zones are part of a federal program put forth in the Tax Cuts and Jobs Act of 2017. The premise of the program is to provide investors with incentives to invest in designated high-poverty areas, or opportunity zones, by providing significant tax advantages.
One of the major tax advantages for investors is tax breaks on capital gains. The profit a seller makes on an investment compared to its original purchase price is known as a capital gain. The federal government generally requires a 20 percent tax on capital gains plus an additional 3.8 percent surtax. However, these taxes can be reduced through investment in opportunity zones.
If an investor develops in an opportunity zone, he or she has the option to place the capital gains into an opportunity fund. The longer the gains stay in the opportunity fund, the more of a tax break the investor will receive. For capital gains that remain in an opportunity fund for at least seven years, the investor can reduce capital gains taxes by 15 percent. However, if an investor holds the investment for more than a decade, he or she can avoid paying any taxes on the returns from the opportunity fund.
For out-of-state investors and those unfamiliar with opportunity zone transactions, real estate laws can be complex and commercial transactions can become complicated. If you are considering investing in an opportunity zone or other location in the Denver area, it can be beneficial to speak with an experienced Colorado real estate attorney.