A Qualified Opportunity Zone (QOZ) Business is part of the broader Qualified Opportunity Fund (QOF) industry, which stems from the Tax Cuts and Jobs Act of 2017 in the United States. This regulation was established to encourage economic development and investment in distressed communities, known as Opportunity Zones (OZs), by providing tax incentives to investors.
A QOZ Business refers specifically to a business in which a substantial portion of its tangible property and management operations are located within an Opportunity Zone. For a business to be considered a QOZ Business:
- Significant Presence within a QOZ: At least 70% of the tangible property owned or leased by the business should be within a QOZ.
- Income Generation within a QOZ: At least 50% of the total gross income of the business must be derived from the active conduct of business within a QOZ.
- Alignment with QOZ Attributes: A substantial portion of the business’s intangible property should be used in the active conduct of the business in the QOZ.
- Non-Exclusionary Business Types: Certain types of businesses, such as golf courses, massage parlors, hot tub facilities, suntan facilities, gambling facilities, and liquor stores, are not eligible to be QOZ Businesses.
Investors who invest in a QOZ Business through a QOF can benefit from deferring capital gains taxes, reducing tax payments on those gains after a certain holding period, and potentially eliminating taxes on gains accrued after the investment in the QOF.
For the most accurate and current information, consider consulting a tax professional or referring to the IRS guidelines on QOZ Businesses and QOFs.