Qualified Opportunity Zone (QOZ) Business Property is a term that is integral to the Qualified Opportunity Fund (QOF) industry in the United States. Established through the Tax Cuts and Jobs Act of 2017, QOFs are investment vehicles that are designed to incentivize private investment in economically distressed communities, known as Qualified Opportunity Zones (QOZs).
“Qualified Opportunity Zone Business Property” refers to tangible property used in a trade or business of the QOF that:
- Was acquired by purchase after December 31, 2017: The property must have been purchased from an unrelated party after this date.
- Is located in a Qualified Opportunity Zone: The property must be within the designated boundaries of a QOZ.
- Original use or substantial improvement: The original use of the property in the QOZ must commence with the QOF, or the QOF must “substantially improve” the property, meaning that the QOF must make investments into the property that at least double its adjusted basis over a 30-month period.
- Use of the property in the business: Substantially all of the use of the property must be in the QOZ during substantially all of the QOF’s holding period for the property.
Understanding and meeting these criteria are vital for investors and fund managers who are participating in the QOF industry to ensure compliance and to take advantage of the tax benefits associated with investments in QOZs, such as deferral of capital gains taxes, step-up in basis, and potential exclusion of gains from the sale or exchange of an investment in a QOF if held for at least ten years.