Opportunity Zones are a way to encourage more investment in economically distressed communities. They were slow in gathering interest for many reasons, but primarily for a lack of guidance from the IRS. Generally speaking, if an investment in a Qualified Opportunity Zone is held for longer than five years, there’s a 10% exclusion of the deferred gain – more than seven years, that exclusion becomes 15%. In addition, if the investment in the Qualified Opportunity Fund is held for at least 10 years, the investor is eligible for an increase in basis of the Qualified Opportunity Fund investment equal to its fair market value on the date the QOF investment is sold or exchanged. To get the full benefit of the qualified opportunity zone program you will need to have made the investment by 2019. However, the advantage most investors are looking at is that after you’ve made the investment, if you hold it for at least 10 years before you sell, you will not pay tax on the gain from that investment.
New additional guidance has been issued addressing the following:
• Special timing rules for Section 1231 gains.
Prior guidance addressed:
• Definition of a Qualified Opportunity Fund and Qualified Opportunity Zone Business,
• Qualification for QOZB Property and “original use” test, • Definition of “substantially all,”
• Recognition of deferred gain during the 10-year holding period of the QOF,
• Sales of assets of a QOF during the 10-year holding period, and
• Sale of a QOF held longer than 10 years.
CONTACT US: Due to the deadline there has been a surge of offerings lately, primarily real estate investment trust-like investments in commercial and residential properties. Before you leap, do some due diligence to confirm that the funds are making an investment in a project or business that is truly in a QOZ, and check with a tax expert that is familiar with the nuances of Opportunity Zones! Consider your objectives prior to becoming a limited partner or minority equity owner in a QOF. Aside from saving taxes, examine the return on investment, security withdrawing funds during the 10 years, and then exiting the fund after 10 years. Weigh the short term and long term goals, along with the costs and risks, against the net benefit of deferring capital gains. Contact us for assistance at 855-534-2727.