Fund Administration Purpose-Built
For Opportunity Zone Funds
A Robust Opportunity Requires Robust Administration
Opportunity Zone Funds hold tremendous potential for fund managers, investors and economically distressed communities. But they demand careful administration and rigorous oversight — the more so since this asset class is brand new, and regulatory guidance is still a work in progress.
At NES Financial, our expertise in supporting and tracking complex tax-deferred investments and government-regulated investment programs, such as the EB-5 immigrant investor program and 1031 tax-deferred exchanges, combined with our institutional-quality private equity fund administration capabilities, uniquely positions us to help Opportunity Zone Fund managers navigate this rapidly evolving marketplace.
Moreover, we’ve developed a purpose-built, technology-enabled Opportunity Zone Fund Administration Solution that delivers the highest levels of investor transparency, regulatory compliance and operating efficiency.
Opportunity Zone Fund Resource Center
Book a Free Opportunity Zone Consultation
Starting an Opportunity Zone Fund and have questions that need answers? Click the button below to schedule your call with one of our Opportunity Zone Fund experts. Our online calendar makes it easy to reserve your spot with one of our experts — all with no obligation whatsoever!
Or, give us a call at 1-800-339-1031 to speak with an Opportunity Zone Fund Services representative.
An Opportunity Zone is an economically distressed community where new investments, under certain conditions, are eligible to create tax benefits for investors. Localities qualify as Opportunity Zones if they have been nominated for that designation by the state and that nomination has been certified by the Internal Revenue Service, acting on behalf of the Secretary of the Treasury. The Opportunity Zones certification process is now complete.
Economically challenged communities in all 50 states, the District of Columbia, and US territories — including the entire island of Puerto Rico, the Northern Mariana Islands, the US Virgin Islands, Guam and American Samoa — have qualified. Rural, urban and suburban areas have all qualified as Opportunity Zones. To determine whether an area is included within an Opportunity Zone, please click here to open the Department of the Treasury Community Development Financial Institutions Fund webpage, which has a complete list and map of the zones.
Capital gains that are realized through the sale or exchange of appreciated property are eligible for the tax benefits, provided that those amounts are invested in an OZ Fund within 180 days of the date of the sale or exchange. Any additional amounts invested in excess of the realized capital gains are not eligible for any tax benefits. There is no tracing of funds and, unlike Section 1031, the taxpayer may take possession of the funds prior to investing them in an OZ Fund.
Check out our OZ Regulations Page for the latest information on Opportunity Zones Regulations.
There are three possible types of benefits that taxpayers may achieve by reinvesting their capital gains into a qualified Opportunity Zone Fund (OZ Fund):
- The taxpayer will achieve a temporary tax deferral for capital gains reinvested in OZ Funds. The deferred gain will be recognized on the earlier of the date on which the taxpayer’s interest in the OZ Fund is sold or December 31, 2026.
- The taxpayer’s basis in their original investment in increased by 10% of the deferred gain if the investment in the OZ Fund is held by the taxpayer for at least 5 years, and by an additional 5% if it is held for at least 7 years. If fully utilized, this step-up in basis translates into an exclusion of 15% of the original capital gains from taxation.
- The appreciation in value of the taxpayer’s interest in the OZ Fund may be permanently excluded from taxation if the taxpayer holds his interest in the OZ Fund for at least 10 years. The taxpayer’s basis in his OZ Fund interest is increased to its current fair market value at the time of the sale or exchange of that interest. This benefit applies only to the appreciation of the investment in the OZ Fund and not to the original gains.
In order to qualify for the tax benefits, the investment must be made by acquiring an interest in an OZ Fund. A taxpayer may not invest directly in an Opportunity Zone property or business. An OZ Fund may, however, invest in multiple Opportunity Zones.
The Internal Revenue Code does not limit the amount that you may invest in an OZ Fund or the amount of the tax benefits that you may receive. However, the OZ Fund sponsor may impose limitations on the amount that you may invest or may limit your investment to your realized capital gains that are eligible for the Opportunity Zones tax benefits.
An OZ Fund can be structured as a corporation or partnership that has invested at least 90% of its assets in qualified opportunity zone property (other than another OZ Fund). Qualified opportunity zone property can be qualified opportunity zone stock, qualified opportunity partnership interests or qualified opportunity zone business property. Different rules apply to the qualified opportunity zone property, depending upon whether it is qualified opportunity zone stock or qualified opportunity partnership interest (meaning that the investing OZ Fund is an Indirect OZ Fund which holds an equity interest in an OZ Subsidiary that is either a corporation or a partnership) versus qualified opportunity zone business property (meaning that the investing OZ Fund Directly invests and holds the qualified opportunity zone business property not through an OZ Subsidiary).
OZ Funds will self-certify their compliance with the OZ Funds requirements through filings with the IRS. However, you should do “due diligence” on the OZ Funds and its sponsors and management prior to investing to satisfy yourself that this investment is appropriate for you and likely to qualify. You may also want to look for an OZ Fund that uses an independent third-party fund administrator, such as NES Financial, which has the specialty software and subject matter expertise to handle the tracking and compliance requirements for a complex tax-motivated investment like an OZ Fund.
To quality, the OZ Fund invests directly in qualified opportunity zone business property, which is tangible property used in a trade or business of the OZ Fund that meets all of the following requirements:
• The OZ Fund acquired the business property by purchase from unrelated persons after December 31, 2017.
• The original use of such business property commences with the OZ Fund, or the OZ Fund
substantially improves the property.
• During substantially all of the OZ Fund’s holding period for such business property, substantially all of the use of that business property was in the Opportunity Zone.
Substantial improvement means that the OZ Fund makes capital expenditures with respect to the business property at least equal to the business property’s acquisition cost during any 30-month period.
To qualify, the OZ Fund must satisfy all of the following requirements:
- Acquire its equity interest in the OZ Subsidiary solely for cash after December 31, 2017, and in the case of an OZ Subsidiary that is a corporation, the acquisition must be at its original issue.
- At such time as the equity interest in the OZ Subsidiary was acquired, the OZ subsidiary was a qualified opportunity zone business, or if the OZ Subsidiary was newly formed, it was organized for the purpose of becoming a qualified opportunity zone business property.
- During substantially all of the OZ Fund’s holding period, the OZ Subsidiary must be a qualified opportunity zone business.
It means a trade or business in which substantially all of the tangible property owned or leased by the taxpayer is qualified opportunity zone business property, defined as follows:
- The business acquired the property by purchase from unrelated persons after December 31, 2017.
- The original use of the property commences with the business, or the business substantially improves the property.
- During substantially all of the business’s holding period for such property, substantially all of the use of that property was in the Opportunity Zone.
- At least 50% of the taxpayer’s total gross income is derived from the active conduct of such business.
- A substantial portion of the intangible property of the taxpayer is used in the active conduct of such business.
- Less than 5% of the average of the aggregate unadjusted bases of the taxpayer’s property is attributable to nonqualified financial property.
Opportunity Zone Fund Administration Solution One-Sheet
The fund administration solutions used for other asset classes are simply not adequately suited to the needs of Opportunity Zone Fund managers and their investors.
The technology-enabled NES Financial Opportunity Zone Fund Administration Solution is purpose-built to efficiently and securely handle the middle- and back-office administration for Opportunity Zone funds, at scale and throughout the investment life cycle. This includes handling the specialized reporting requirements of the program.
If you are ready, give us a call at 1-800-339-1031 to speak with an Opportunity Zone Fund administration expert.
Or, if you’re looking for more information, but aren’t ready to chat, download our Opportunity Zone Fund Solution one-sheet for free instead!
Opportunity Zones Map
Opportunity Zone Regulations
On October 19, 2018, the Treasury Department issued much-anticipated regulations on Qualified Opportunity Funds (QOFs). Check out the recent headlines, download the regulations, and get caught up on all the news.
“The Opportunity Zone investment program has the potential to be the most impactful economic development program in the country. It is encouraging to see solutions like this coming into the space because ultimately, for the program to achieve its objectives, it will require many service providers and solutions that embrace best practices.”
Jim Butler, Founding Partner at JMBM
Get a Free Opportunity Zone Fund Consultation
Our free consultations carry no obligation whatsoever and are a great way to find out how our purpose-built, technology-enabled Opportunity Zone Fund Administration Solution efficiently delivers the highest levels of fund security, investor transparency, and regulatory compliance.
Download Our Opportunity Zone Solution One-Sheet
Not ready to give us a call about how we can help administer your fund? Download our Opportunity Zone Fund Administration one-sheet for free instead!
Learn more about this purpose-built, technology enabled administration solution, and why NES Financial is uniquely positioned to help Opportunity Zone Fund managers navigate this new and rapidly evolving marketplace.