Since enactment, Opportunity Zone legislation has given investors with capital gains access to an exclusive set of tax benefits that can offer tax savings on several fronts.
As you can see using our returns calculator, through these tax advantages, an investment in our Opportunity Fund may help you boost your net return by nearly 50%.
By moving capital gains into an Opportunity Fund within 180 days of realization, investors can potentially:
- Defer paying capital gains taxes on that gain until December 31, 2026, or until they sell their Opportunity Fund investment – whichever is earlier.
- Reduce their deferred capital gains tax liability by up to 15% through a step-up in basis if their new investment has been held for 5-7 years by December 31, 2026.
- Pay zero dollars in capital gains taxes on appreciation from their original Opportunity Fund investment if the investment is held for at least 10 years.
As of now, there’s no limit on the amount of capital gains that can be invested in Opportunity Funds, which enables investors to access preferential tax treatment for as much as they choose to roll over.
For instance, let’s say that you’ve realized a capital gain of $250,000, and rolled it over into an Opportunity Fund in accordance with Opportunity Zone legislation. As the calculator demonstrates, if an Opportunity Fund were to produce an 11% annualized return, you could expect to save more than $200,000 over the course of your investment, boosting your after-tax value by 44%.
It’s worth noting that our calculator assumes that a traditional stock market portfolio will be able to consistently perform at the same level as an Opportunity Fund. However, given expensive price-to-earnings ratios and the fact that we’re in the longest-running economic expansion on record, this is arguably a generous assumption.
Now may be an ideal time to begin fortifying one’s portfolio through defensive positions, exposure to counter-cyclical markets and asset classes, diversification across truly uncorrelated assets, and increased exposure to investment strategies with a long-term horizon. We believe the Fundrise Opportunity Fund can help investors meet these goals.
With the yield curve having recently inverted, a traditional indication of an impending recession, we believe Opportunity Zone investing can be a prudent part of building an all-weather portfolio for eligible investors. In addition, as a multi-asset operating fund, the Fundrise Opportunity Fund can help investors maximize diversification not only within their overall investment portfolios, but within their Opportunity Zone investment portfolios, specifically.
We believe that our Opportunity Fund offers investors a compelling way to preserve and grow capital over the next 10 years. Rather than being shuffled through the highs and lows of the business cycle, Opportunity Fund investing provides individuals the ability to pursue an investment strategy focused on opportunistic plays that aim to leverage long-term trends, all while gaining access to an exclusive set of federal tax benefits. Moreover, we believe that these tax benefits pair particularly well with real estate, which we view as a long-term asset class, and have historically outperformed other asset classes in both its consistency and total returns.
Finally, we believe Fundrise’s experience investing in burgeoning neighborhoods - coupled with our REIT-specific operational and compliance experience - puts us in a unique position to help investors extract better returns over the next decade.
Click here to learn more about the Fundrise Opportunity Fund or place an investment.