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Qualified Opportunity Zone Property (QOZP)

The Qualified Opportunity Zone Property (QOZP) is a significant concept in the Qualified Opportunity Fund (QOF) industry, which emerged from the Tax Cuts and Jobs Act of 2017 in the United States. A Qualified Opportunity Zone (QOZ) is a designated economically distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. The goal is to spur economic development and job creation in these distressed communities.

A Qualified Opportunity Zone Property (QOZP) refers to the investment made by a QOF in the businesses, real estate, or business assets located in a QOZ. A QOZP must meet several requirements to maintain the tax benefits associated with the QOZ program, and they are primarily categorized as follows:

  1. Qualified Opportunity Zone Stock (QOZS)
    • Stock or ownership interest in a domestic corporation that operates within a QOZ.
    • The corporation must derive a significant amount of its income from the conduct of a trade or business within the QOZ.
  2. Qualified Opportunity Zone Partnership Interest (QOZPI)
    • Ownership interest in a domestic partnership that operates within a QOZ.
    • Similar to QOZS, a significant portion of income must be generated within the QOZ from a trade or business.
  3. Qualified Opportunity Zone Business Property (QOZBP)
    • Tangible property used in a trade or business within a QOZ.
    • The property must be purchased after December 31, 2017, and must either be new or substantially improved.
    • The property should be used in the business within the QOZ for at least a substantial portion of the QOF’s holding period.

By investing in a QOZP, a QOF can ensure that its investors receive the tax benefits associated with investing in a QOZ, such as deferral of capital gains taxes, step-up in basis, or potential exclusion of gains from the sale or exchange of an investment in a QOF if held for at least ten years. These benefits are in place to incentivize long-term investment in economically distressed areas, promoting economic revitalization and growth.