This article provides information for educational purposes. NerdWallet does not offer advisory or brokerage services, nor does it recommend specific investments, including stocks, securities or cryptocurrencies.
With this year’s strong stock and property markets, figuring out how to minimize capital gains tax may be top of mind for investors. Qualified opportunity funds can provide tax advantages, but acting fast makes a difference: You can reap the benefits of three tax perks instead of just two if you invest by year-end.
What is a qualified opportunity fund?
In 2017, the Tax Cuts and Jobs Act established a new tax perk allowing investors to defer and minimize capital gains taxes when reinvesting capital gains into qualified opportunity zones, which are economically depressed regions within the U.S. Qualified opportunity funds invest in businesses or properties within qualified opportunity zones, offering that preferential tax treatment to the fund investors.
By encouraging investment into opportunity zones, the government hopes to propel economic growth by creating more jobs, driving business activity, expanding housing options and kickstarting new startups in distressed communities. Whether that plan will work is up for debate: A June 2020 study by the Urban Institute found that though there have been investments that made community impact, oftentimes the capital has not gone toward the areas with the greatest need, but rather has benefitted real estate developers more.