Ask HN: Are you thinking about investing in an Opportunity Zone?

Part of the Republican 2017 tax reform involved a section about Opportunity Zones. These are designated low-income areas where the government wishes to increase investment. The mechanism is that if you reinvest money made through capital gains into an OZ, you can defer the capital gains tax for up to 10 years, reduce the overall amount of the tax, and avoid all CG tax on the investment returns in the OZ.

I won't pretend to know all the details about startup tax treatment, but I think it could be relevant for a lot people who are coming out of startup acquisitions and are suddenly liable for significant capital gains taxes. Here are two scenarios:

Default:

- Joe the engineer's startup is purchased by BigCo, leaving Joe with a $1M worth of stock options.

- Joe decides to sell the options and buy a house. He pays roughly $300K of CG tax and buys a house worth $700K.

- Joe lives in the house for 10 years and then decides to retire to the countryside. Over that time, the house has doubled in value. Joe realizes another $700K of capital gains when he sells the house which corresponds to $200K of CG tax, so after all is said and done, his net worth is $1.2M.

OppZone:

- Same initial story, but immediately after Joe sells his options, he uses the money to buy a house in an Opportunity Zone.

- Joe pays no CG tax on the option sale, so he buys a house for $1M.

- After 10 years, the house doubles in value, and Joe decides to sell and retire.

- He now pays CG tax on the initial option sale, but no tax on the increase in home equity. So his value after all the transactions is $1.7M, a $500K difference.

https://eig.org/opportunityzones/about

https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions