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Substantial Improvement

Substantial Improvement in the Qualified Opportunity Funds (QOF) and Opportunity Zones is a term used in U.S. federal tax policy. The Tax Cuts and Jobs Act of 2017 introduced Opportunity Zones as a community development program aimed at encouraging long-term investments in low-income urban and rural communities nationwide.

A Qualified Opportunity Fund is an investment vehicle that is set up as either a partnership or corporation for investing at least 90% of its holdings in eligible property located in an Opportunity Zone.

Regarding Substantial Improvement, this refers to the requirement that the QOF must make considerable enhancements to the properties it invests in. More specifically, within 30 months of acquiring a property, the QOF must invest an additional amount equal to or exceeding the initial purchase price of the building in improving the property. This doesn’t include the cost of purchasing the land.

The concept behind Substantial Improvement is to ensure that the benefits of the investments flow into the community, revitalize the area, and not just benefit the investors by merely purchasing and holding properties in these zones. This helps to make sure that the investments lead to economic development and job creation in these distressed communities.