Former Governor Rick Scott approved three census tracts in Cocoa as federal Opportunity Zones. Originating from the 2017 Tax Cuts and Jobs Act, Opportunity Zones aim to spur development in low-income communities using this new tax incentive investment opportunity. The Opportunity Zones program provides three scalable tax incentives for investors to re-invest their unrealized capital gains into Opportunity Zone (QOZ) Funds dedicated to investing in distressed communities.
A deferral of tax, a step-up in basis, and a permanent exclusion of gain on appreciation. The deferral of tax incentive allows the taxpayer to temporarily defer (or temporarily not pay) tax on the original gain event. The tax on the original gain will be due when the investment in the QOZ Fund is sold or in the tax year that includes December 31, 2026, whichever is sooner.
If the investment in the QOZ Fund is held five or seven years, the taxpayer is entitled to a step-up in basis that essentially eliminates a portion of the original gain. The step-up in basis is 10% if the investment is held five years and 15% if the investment is held seven years. Since the original gain will be recognized no later than December 31, 2026, taxpayers must make qualifying investments no later than December 31, 2019, to meet the full seven-year holding period requirement and qualify for the 15% step up in basis.
The third tax incentive is what makes investments in QOZ Funds a potential home run. If the investment in the QOZ Fund is held 10 years or longer, any appreciation on the investment in the fund is completely tax-free.
Out of the 427 Opportunity Zones Florida successfully had approved from its list, Cocoa Census tracts 623, 624 and 626 were approved.