People and businesses invest money in different property types for all sorts of reasons. From a legal standpoint, property is defined as something you own. Qualified Opportunity Funds (“QOF”) are uniquely positioned to invest in Qualified Opportunity Zone (“QOZ”) Business Property in a way that may change strategies for investors across the U.S.
Moving the definition of “property” into the Opportunity Zones program, QOZ Business Property is considered tangible property in a QOZ that is used in a trade or business.
In this article we will specially dissect Opportunity Zone Business Property (“QOZBP”), which is considered tangible property in a QOZ used for trade or business. (Learn more about the other two asset types: stock and partnership interests.)
The definition of a QOZBP refers to real property, or real estate, and can also include equipment and other tools used to run a business in the targeted zone. There are three components a business property must have in order to be considered a designated QOZBP including:
To illustrate, say your QOF acquired the vacant hotel for $10 million, with the intent of turning it into workforce housing. The property’s basis is $10 million – what your fund paid for it. During its first year of ownership, the fund invests an additional $10 million (plus $1) into property upgrades pushing the basis to $20 million+. The fund’s formerly empty hotel is now substantially improved, based on the QOZBP definition.