Invest in Opportunity Zones with Integrated Tax, Wealth Strategies

  • Economy and capital markets
  • 2/29/2024
Two realtors looking at construction plans in empty building.

Key insights

  • The qualified opportunity zone (OZ) program, enacted as part of the Tax Cuts and Jobs Act, has catalyzed development in many targeted areas throughout the United States. The OZ program incentivized taxpayers to invest in designated communities by providing distinct tax benefits.
  • CLA understands the specific challenges of investing in OZs and can guide taxpayers through the investment life cycle.
  • Having an advisory team that understands your goals is critical to executing a successful strategy for OZ investments.

Boost the many benefits of Qualified Opportunity Zones.

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OZ program overview

The qualified opportunity zone (OZ) program was created as part of the Tax Cuts and Jobs Act as an incentive to encourage investment in economically distressed communities across the United States, including the 50 states, the District of Columbia, and Puerto Rico. The OZ program provides three distinct benefits to taxpayers who make investments into designated opportunity zones:

  • Temporary deferral of capital gains invested in a qualified opportunity fund (QOF) through December 31, 2026 (or earlier if the QOF investment is sold)
  • For investments made prior before December 31, 2021, a possible 10% or 15% permanent reduction in the deferred gains if the taxpayer held the QOF investment for at least five or seven years, respectively, before December 31, 2026
  • Total permanent exclusion of future gains from the disposition of the QOF investment if the taxpayer held such investment for at least 10 years

To qualify for OZ benefits, investments must be made into a specific vehicle known as a QOF. Only investments where the taxpayer has made a deferral election will qualify to receive the program’s full benefits, including the most lucrative, benefit — the ability to permanently exclude future gain from taxable income after holding the QOF investment for 10 years.

The OZ legislation is statutorily set to expire December 31, 2026. After this date, taxpayers will no longer be able to invest realized capital gain, although existing investments in a QOF may continue to be held by investors through December 31, 2047.

After only five years into the program’s life, OZ program advocates believe it’s meeting congressional intentions for increasing economic activity in underserved communities.

CLA’s approach to serving OZ clients

CLA helps clients realize the benefits and economic value of investing in opportunity zones. OZ investment strategies are considered during business sales, real estate investment sales, and when calculating investment portfolio gains.

CLA’s team of knowledgeable and collaborative professionals understands the technical nature of this complex tax incentive. CLA can assist with capitalization structure alternatives as well as ongoing testing to comply with the program’s mandatory rules.

CLA’s collaborative approach

Approaching OZ investments collaboratively brings wealth advisory and tax planning together to offer an integrated and comprehensive financial strategy.

CLA’s full range of service capabilities can support client needs during any stage of their OZ investment cycle, including:

  • Investment banking and private client services — to help align financial goals after a succession event
  • Tax compliance and consulting — to support the complex system of compliance rules in the OZ regulations
  • Outsourced finance and accounting — to meet client financial reporting and oversight needs
  • Fund administration — to support private equity sponsors as they manage investor expectations

CLA clients investing and managing capital in OZs

CLA’s holistic approach to wealth advisory includes integrating tax efficient strategies like OZ into portfolios. Based on internal data analyzed through the 2022 tax filing period, our clients’ investments in OZs have grown to nearly $1.5 billion during the last three years.

Total OZ Investments 

CLA’s focus on serving privately held businesses and their owners complements our strategy in serving stakeholders in the OZ community. Based on our internal data analyzed through the December 31, 2022, our QOF clients reported just over $2 billion of total equity raised through 2022.

Total OZ Equity Raised 

CLA’s commitment to know and help you is strengthened by our deep experiences serving private equity fund managers and real estate operators raising and deploying capital in opportunity zones. Understanding our clients’ business throughout the real estate life cycle offers valuable insights for your opportunity zone project.

Creating investment value is important to equity managers. By creating long-lasting relationships with clients, we can help navigate important decisions to achieve your opportunity zone investment goals.

How we can help

Investors should consult with professional advisors to determine how OZ investments could benefit their overall tax and financial strategy. CLA has a strong team of tax professionals and wealth advisors who have deep experience and working knowledge of opportunity zones, tax planning, and wealth strategies.

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