Investments in an Opportunity Zone are made through Qualified Opportunity Funds ("QOF"). You can invest in a Qualified Opportunity Fund as an individual, a corporation or partnership, but what is most important is that you strictly follow the guidelines set by the Treasury and IRS.
You Need Capital Gains: Investors with realized capital gains have within 180 days to designate these gains to a Qualified Opportunity Fund. Proceeds invested in an Opportunity Fund which are not capital gains do not receive the tax benefits. Investors creating their own Opportunity Fund would fill out a self certifying form to be submitted with their taxes, or there are numerous outside managed Opportunity Funds looking for investors.
You Need a Long-Term Investment Horizon: Opportunity Zones and Opportunity Funds were formed to encourage long term equity investments in low income areas. Investors are rewarded by putting tax deferred capital gains to work with tax benefits after five, seven and ten years of investment.
Opportunity Fund Investments must be made in an Opportunity Zone: Qualified Opportunity Funds are required to have 90% of their assets invested in a Qualified Opportunity Zone, with semiannual tests and interest penalties for funds not in compliance. There is also a "two tier" structure where the Opportunity Zone Fund invests in a partnership, which then is required to invest 70% of its assets into Qualified Opportunity Zone property. Regardless of your approach, be sure to check with a professional to make sure you have correctly followed the IRS and Treasury guidelines.
Your Opportunity Zone Property Needs to be Improved: The purpose of the Opportunity Zone tax benefits is to encourage investment and redevelopment of run-down areas with private capital. As part of purchasing Opportunity Zone real estate for redevelopment, improvements must be made to the property of at least 100% of the basis of the property within 30 months but the cost of the land is not included.