Contact UsI generated a large 2019 gain earlier this month, can I invest it immediately into an OZ Fund or do I need to wait?
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Tax Professional Answers
Blake Christian
. The rules are a bit tricky here. If the gain is a non-IRC Section 1231 (trade or business asset held > year) gain from a direct investment held by you or a grantor trust then the 180-day reinvestment period starts on the date of sale.
However, if the gain is flowing to you on a K-1, Treasury views that gain as generated on December 31, 2019 and the 180-day reinvestment period generally begins on that date – so technically that would be the first day you could invest your K-1 or 1231 gain.
If the K-1 gain is a non-1231 gain and an equity holder prefers to invest prior to December 31st, the business entity can notify the equity holders of the asset sale date, gain amount and the fact that the entity is NOT going to elect to invest in a Qualified Opportunity Fund (QOF) at the entity level, then the equity holders can elect to start the 180-day period on the date of sale. This will give investors optimal flexibility on reinvesting.
The IRS recently issued relief for taxpayers with 2018 Section 1231 gains who invested prior to year-end. The IRS concluded that the taxpayer made a valid QOF investment since the investment was less than the NET 1231 gain for the year. While there is pressure on Treasury to relax this 1231 netting and year-end recognition rule, investors should not rely on the FAQ for calendar 2019.
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252 weeks ago
However, if the gain is flowing to you on a K-1, Treasury views that gain as generated on December 31, 2019 and the 180-day reinvestment period generally begins on that date – so technically that would be the first day you could invest your K-1 or 1231 gain.
If the K-1 gain is a non-1231 gain and an equity holder prefers to invest prior to December 31st, the business entity can notify the equity holders of the asset sale date, gain amount and the fact that the entity is NOT going to elect to invest in a Qualified Opportunity Fund (QOF) at the entity level, then the equity holders can elect to start the 180-day period on the date of sale. This will give investors optimal flexibility on reinvesting.
The IRS recently issued relief for taxpayers with 2018 Section 1231 gains who invested prior to year-end. The IRS concluded that the taxpayer made a valid QOF investment since the investment was less than the NET 1231 gain for the year. While there is pressure on Treasury to relax this 1231 netting and year-end recognition rule, investors should not rely on the FAQ for calendar 2019.