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Equity Investment

Equity Investment in the context of the Qualified Opportunity Fund (QOF) industry refers to the purchase of ownership shares in businesses, real estate, or other ventures located within designated Opportunity Zones.

Opportunity Zones are economically-distressed communities where new investments, under certain conditions, may be eligible for preferential tax treatment. This program was introduced in the Tax Cuts and Jobs Act of 2017 in the United States. The goal is to spur economic development and job creation in distressed communities.

Investors can defer tax on any prior gains invested in a QOF until the earlier of the date on which the investment in a QOF is sold or exchanged, or December 31, 2026. If the QOF investment is held for longer than 5 years, there is a 10% exclusion of the deferred gain. If held for more than 7 years, the 10% becomes 15%. If the investment in the QOF is held for at least ten years, the investor is eligible for an increase in basis equal to the fair market value of the investment on the date that the QOF investment is sold or exchanged.

So, an Equity Investment in this context is a type of investment made with capital invested in a QOF in exchange for a percentage of ownership and potential returns based on the performance of the invested project or business. The investment must be made into a business that earns at least 50% of its income within that opportunity zone, among other requirements, in order to qualify for the aforementioned tax advantages.