By Opportunity Zone Expo Staff
Investor interest has picked up since the IRS and the Treasury Department released the first version of rules for investing in Opportunity Zones on October 19. The new rules state that corporate capital gains are allowed to be invested in the zones and lengthens the time period of investment. This could be promising news for cryptocurrency investors.
“For the first time, investors in cryptocurrencies like Bitcoin now have a major tax shelter available to them. The recent Tax Cuts and Jobs Act allow cryptocurrency investors to roll their capital gains into Opportunity Zone Funds that hold real estate and other hard assets,” says Ben Miller, co-founder and CEO of Fundrise, an online investment platform.
Miller says the Opportunity Zone tax incentive lets investors defer their original capital gains tax until 2027, reduce that tax payment by up to 15 percent, and pay zero capital gains on any profits from an Opportunity Fund investment.
Ryan C. Brunton, a partner at Husch Blackwell, which has more than 25 lawyers in its Opportunity Zones Practice Group, says Opportunity Zone investing provides cryptocurrency investors with a vehicle to defer and protect capital gains experienced in the market.
“By investing in real estate, startups or other operating businesses located in a qualified zone, cryptocurrency investors can put tax dollars to work in new investments, maximizing the potential returns while enjoying a deferral of the underlying tax liability,” says Brunton.
The IRS has classified cryptocurrency as property, which experts believe means cryptocurrency may get access to capital gains tax advantages that other types of property receive. The 2017 Tax Cuts and Jobs Act limited the 1031 Exchange to real estate transactions and further rules on exchanges of cryptocurrencies is yet to be released.
“There has been no indication from Treasury that cryptocurrency gains would not qualify. It should be noted that not all cryptocurrency gains are capital gains. Only capital gains qualify for OZ benefits,” says Mary Burke Baker, government affairs counselor for K&L Gates LLP.
Brunton says the Opportunity Zone program seeks to broaden the horizon when connecting capital to low income communities. He says in order to make those connections, the incentive needs to be valuable to the desired investor classes.
“OZ investing provides cryptocurrency investors with a chance to diversify their holdings by engaging in impact investing, all while receiving significant tax benefits for their participation in the program. From my perspective, that is truly a win, win,” says Brunton.