Can Anyone Invest in Opportunity Zones?

The Opportunity Zones Program has provided a way to direct billions of dollars of capital toward urban renewal and revitalization projects in designated Qualified Opportunity Zones. Those investing in Qualified Opportunity Funds (QOFs) can also benefit from certain tax advantages.

But can anyone invest in opportunity zones? Or more specifically, can anyone invest in the Qualified Opportunity Funds that direct monies toward QOFs?

The simple answer is that anyone with capital gains from the sale of capital assets could, in theory, invest in QOFs. The idea behind the program is that capital gains invested in QOFs could provide capital gains tax deferrals for investors.

The more complex answer is that most QOFs require a large influx of capital from outside investors. In many cases, $250,000 is the minimum required investment in a QOF. As such, most QOF sponsors limit their offerings to accredited investors.

Accredited investors have special status under financial regulations laws. They include individuals that have:

• Income exceeding $200,000 in each of the two most recent years or joint income with a spouse that exceeds $300,000 for those same years (with the expectation that this will continue), or
• A net worth (or joint net worth with a spouse) that exceeds $1 million, or
• Assets under management of $1 million or above, excluding the value of a primary residence

Another is that QOFs are considered securities. As such, many QOF sponsors register these funds with the Securities and Exchange Commission (SEC). Under this registration, QOFs aren’t available on the open market. Rather, they’re offered through investment advisors or broker-dealers. These entities also only target accredited investors, for the most part. 

So what happens if you’re a non-accredited investor who wants to invest in QOF? It is possible to form your own QOF. But doing so means adherence to extremely stringent IRS requirements.

You’d need to set up an entity (a partnership or corporation) with the sole purpose of investing in QOZ properties. You’d need to ensure that 90% of the fund’s holdings are in Qualified Opportunity Zone Property. And you’d need to ensure that assets held by the fund are substantially improved within 30 months of purchase. If you’re a non-accredited investor who has a small amount of capital gains on which you want to defer taxes, there are other ways to do so.

So, can anyone invest in Opportunity Zones? Certainly, those who have capital gains and want to defer capital gains taxes could be considered legitimate QOF investors. But most QOFs are looking for accredited investors with fairly high minimum investments.

If you are an accredited investor who is considering a Qualified Opportunity Fund investment, be sure to talk with your tax planner or financial advisor before deciding.