Qualified Opportunity Zone Investment Funds
Quite a few Americans are looking for ways to invest their money and maximize their profits without facing all the risks involved in the stock market. Many are also searching for ways to help nearby communities grow and thrive. Some have found an effective means of doing both at the same time.
Opportunity zones give investors a chance to delve their money into underdeveloped areas. Businesses and residents of those communities benefit from the extra funding, and investors gain a worthwhile opportunity to minimize their risks by investing in the potentially lucrative world of real estate.
Investing in Opportunity Zone Funds
Investors can place their assets or finances into qualified opportunity zone funds. These are essentially organizations or partnerships established for the primary purpose of investing in opportunity zones.
To qualify as this type of fund, an entity must maintain at least 90 percent of its assets in QOZ properties.
If you’re interested in this type of investment, you can search for qualified opportunity zone funds near me. Before doing so, though, it’s important to understand some of the basic rules surrounding holding cash in QOZ funds.
1) Mandatory Funds Investments
Qualified opportunity funds are required to keep at least 90 percent of their assets invested in opportunity zone properties or businesses. Those investments can be direct or indirect, but they must be allotted to qualifying properties.
The remaining 10 percent doesn’t have to be invested in qualified opportunity zone properties. If the fund fails to comply with this regulation, it could lose its qualifications though certain exceptions are in effect right now due to the pandemic.
2) Nonqualified Financial Assets
We mentioned that a qualified opportunity zone fund must keep at least 90 percent of its cash and other assets invested in opportunity zone properties.
That leaves an additional 10 percent free for other options. For qualified opportunity zone businesses, half of that, or five percent, can be held as cash or financial assets that don’t fall into the category of qualified opportunity zone property.
3) Working Capital Allowances
Qualified opportunity zone businesses may exceed the five percent limitation for nonqualified financial assets in some situations.
As long as those businesses provide a solid written plan for their working capital, they can hold onto more than five percent of their cash for up to 31 months.
4) Six-Month Exceptions
When a qualified opportunity zone fund receives a new influx of cash, it can hold onto that investment for up to six months. QOFs must undergo twice-annual asset compliance checks to ensure they’re not keeping more cash than they’re allowed.
Any cash investments received within six months of those analyses aren’t counted as part of their 10 percent allowances.
5) Twelve-Month Reinvestment Periods
When QOFs sell QOZ properties, they’re allowed to keep the proceeds from the sales for up to a year.
Before that twelve-month period has lapsed, the QOF must reinvest the proceeds into another QOZ property.
During that year, the proceeds are still considered QOZ property, so they don’t count as part of the 10-percent cash allowance.
Whether you’re interested in investing in a qualified opportunity zone fund or considering creating a QOF, understanding the rules involved is crucial. It will help you protect your investment and remain in compliance with the applicable regulations.
Knowing what the rules entail will also go a long way toward planning for tax payments and other investments moving forward.