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Archive for Blake Christian

Opportunity Zone Legislative Update (June 2021)

Opportunity Zone Legislative Update (June 2021)

The IRS has been busy releasing updates regarding the Opportunity Zone program (OZ), and the HCVT OZ Team wants to keep you informed on all the latest OZ news.

Most importantly, the Biden Administration is continuing to support the program. This comes as no surprise, considering the architects of the 2018 program came out of the Obama Administration. We do anticipate a few OZ program refinements this year, but no major overhaul. The legislative program updates we anticipate are summarized below, in Exhibit A. For the most part, these changes will be beneficial to investors.

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5 Ways Existing Landowners Can Benefit From Deploying Land Into A Qualified Opportunity Fund

5 Ways Existing Landowners Can Benefit From Deploying Land Into A Qualified Opportunity Fund

Anyone in the real estate business is aware of the powerful, impactful and flexible Opportunity Zone (OZ) Program which became effective Jan. 1, 2018 as part of the Trump Administration’s bi-partisan Tax Cuts and Jobs Act (2017 Tax Act). However, developers are generally required to modify their traditional game plan of contributing property, receiving equity as “carried interest” in the partnership and navigating the related-party and self-constructed asset rules in order to comply with some of the unique structuring requirements under Internal Revenue Code (IRC) Section 1400Z and related Regulations which control the OZ Program.

The OZ program currently allows up to a current five-year federal (and in all states other than CA, MS, NC, NY and MA) tax deferral on virtually any U.S. short-term or long-term capital gain, other than gains generated on related-party transactions (20% common ownership). For gains invested into a Qualified Opportunity Fund (QOF) by Dec. 31, 2021, the OZ program allows the taxpayer to increase their tax basis in the QOF by 10% after holding the QOF interest for 5 years. Provided the taxpayer has held the QOF for the required five-year holding period on the earlier of: i) Dec. 31, 2026, or ii) the disposition date of the QOF interest the taxpayer only reports 90% of the deferred tax gain. For example, a taxpayer deferring a $1 million gain will report $900,000 on Dec. 31, 2026 (or on an earlier disposition or “Inclusion Event” date).

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Opportunity Zone Legislative Update June 2021

Opportunity Zone Legislative Update June 2021

The Biden Administration is continuing to support the program. This comes as no surprise, considering the architects of the 2018 program came out of the Obama Administration. We do anticipate a few OZ program refinements this year, but no major overhaul. The legislative program updates we anticipate are summarized below, in Exhibit A. For the most part, these changes will be beneficial to investors.

Perhaps the most talked about topic in the tax world is President Biden’s proposal to increase the rates for long-term capital gains. If passed, the maximum rate could rise from 23.8% to 43.4% for taxpayers with over one million dollars of taxable income. There are doubts that Congress will increase the rate to that level, but any rate change may or may not survive until 2026, when the OZ deferred gains are generally reportable (based on the next administration). The risk of the rate increase for 2020 and 2021 deferred gains should be considered when deciding to defer, and we will be glad to discuss the long-term impact.

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Opportunity Zone Legislative Update Effective June 1, 2021

Opportunity Zone Legislative Update Effective June 1, 2021

The IRS has been busy releasing updates regarding the Opportunity Zone program (OZ), and the HCVT OZ Team wants to keep you informed on all the latest OZ news.

Most importantly, the Biden Administration is continuing to support the program. This comes as no surprise, considering the architects of the 2018 program came out of the Obama Administration. We do anticipate a few OZ program refinements this year, but no major overhaul. The legislative program updates we anticipate are summarized below, in Exhibit A. For the most part, these changes will be beneficial to investors.

Read more

Cryptocurrency Investors Turn To Opportunity Zones For Tax Relief

Cryptocurrency Investors Turn To Opportunity Zones For Tax Relief

Whether you consider cryptocurrency an investment, a commodity, an alternative banking system or a form of legalized gambling, the rapid adoption and stunning recent volatility of cryptocurrencies has led to frenetic trading by investors. As a result of COVID-19 disruption, economic uncertainty and the entry of PayPal into the crypto-consumer market (allowing more than 300 million users to buy cryptocurrencies easily), the crypto market has seen a dramatic runup in the values of Bitcoin and many other cryptocurrencies.

Speculative crypto trading (as well as day trading of stocks) has made many crypto investors wealthy on paper. Their trading generated a substantial amount of short-term capital gains. The IRS has made it clear that Bitcoin and other cryptocurrencies should be treated as assets or intangible property — and not currency — since it is not issued by a central bank. This results in taxability virtually every time crypto is transferred or liquidated.

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OZONE ALCHEMY: Turning Net 1231 Gains Into Gross 1231 Gains (and Losses)

OZONE ALCHEMY: Turning Net 1231 Gains Into Gross 1231 Gains (and Losses)

SAVVY TAXPAYERS ARE TRANSFORMING BUSINESS GAIN TAXATION LEAD INTO GOLD. THEIR APPROACH IS FAR FROM “ORDINARY”.

Key Takeaways

  • Treasury and IRS initially struggled regarding how to deal with IRC Section 1231 gains and losses in the context of the OZ program; however, the final OZ Regulations ended up being extremely taxpayer-friendly.
  • Understanding how and why Treasury arrived at its decision unlocks a remarkable, yet brief, planning opportunity for taxpayers and their advisors.
  • With the right planning, taxpayers can isolate gross 1231 gains for OZ reinvestment eligibility but still claim gross 1231 losses in the same year at ordinary income rates – resulting in permanent tax savings.
  • Taxpayers who already reported net 1231 gains in tax years 2019 and 2020 can still likely make tax-advantaged QOF investments for those years—but the window is closing fast – especially for 2019 1231 gains.
  • This ability to defer 1231 gain and recognize 1231 losses can further benefit certain taxpayers who would have otherwise been forced to pay ordinary rates on net 1231 gains in a given year as a result of the five-year “look-back” period under 1231(c).

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OZONE ALCHEMY: Turning Net 1231 Gains Into Gross 1231 Gains (And Losses)

IRC Section 1231 (Gains And Losses)

Key Takeaways

  • Treasury and IRS initially struggled regarding how to deal with IRC Section 1231 gains and losses in the context of the OZ program; however, the final OZ Regulations ended up being extremely taxpayer-friendly.
  • Understanding how and why Treasury arrived at its decision unlocks a remarkable, yet brief, planning opportunity for taxpayers and their advisors.
  • With the right planning, taxpayers can isolate gross 1231 gains for OZ reinvestment eligibility but still claim gross 1231 losses in the same year at ordinary income rates – resulting in permanent tax savings.
  • Taxpayers who already reported net 1231 gains in tax years 2019 and 2020 can still likely make tax-advantaged QOF investments for those years—but the window is closing fast – especially for 2019 1231 gains.
  • This ability to defer 1231 gain and recognize 1231 losses can further benefit certain taxpayers who would have otherwise been forced to pay ordinary rates on net 1231 gains in a given year as a result of the five-year “look-back” period under 1231(c).

The following discussion is arguably the most powerful planning opportunity for OZ investors with the right fact pattern.  This planning opportunity recently became available as a result of very taxpayer-friendly rules for IRC 1231 gains and losses contained in the final OZ regulations, as well as the issuance of IRS Notice 2021-10 – a secondary COVID-19 extension for OZ investors.

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IRS Notice 2021-10 Provides Additional Short-term Relief For Qualified Opportunity Fund Requirements

IRS Notice 2021-10 Provides Additional Short-term Relief For Qualified Opportunity Fund Requirements

As a result of the continuing COVID-19 impact on businesses and individuals the IRS released a second Notice (IRS Notice 2021-10) on January 19, 2021 to provide Opportunity Zone (OZ) investors with additional time to roll capital gains into a Qualified Opportunity Fund (QOF), as well as additional time to make “substantial improvements” to acquired property and additional time to acquire Qualified Opportunity Zone Business Property (QOZBP).  This Notice follows the June 2020 Notice 2020-39 which extended various 2019 and 2020 OZ Program deadlines and testing dates – generally through December 31st. The extended relief under 2021-10 is generally through March 31, 2021.

Details of the relief given by Notice 2021-10 are outlined below:

  • 180-day investment period.Previously, Notice 2020-39 had postponed the investment period to December 31, 2020. Notice 2021-10 further postpones the last day of the 180-day investment period to March 31, 2021, if the last day of the original 180-day investment period fell on or after April 1, 2020

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A Bit (Coin) of Luck: Cryptocurrency Tax Gains Find Enhanced Value In The Land Of OZ

A Bit (Coin) of Luck: Cryptocurrency Tax Gains Find Enhanced Value In The Land Of OZ

Cryptocurrency continues to gain popularity both as an investment asset and as a means to pay for goods and services.  The growing ease with which a person can buy, hold and sell cryptocurrency has resulted in an explosion in crypto transactions – and, in turn, has left taxpayers needing to account to the IRS for their newfound cryptocurrency gains (and losses).

This powerful trend reached a new peak in 2020 when, as a result of COVID-19 disruption, related worldwide economic uncertainty and entry of companies such as PayPal into the consumer market (allowing more than 300 million users to easily buy cryptocurrencies), the crypto-market witnessed a dramatic run-up in the values of Bitcoin and many other cryptocurrencies.

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IRS Notice 2021-10 Provides Additional Short-term Relief For Qualified Opportunity Fund Requirements

IRS Notice 2021-10 Provides Additional Short-term Relief For Qualified Opportunity Fund Requirements

As a result of the continuing COVID-19 impact on businesses and individuals the IRS released a second Notice (IRS Notice 2021-10) on January 19, 2021 to provide Opportunity Zone (OZ) investors with additional time to roll capital gains into a Qualified Opportunity Fund (QOF), as well as additional time to make “substantial improvements” to acquired property and additional time to acquire Qualified Opportunity Zone Business Property (QOZBP).  This Notice follows the June 2020 Notice 2020-39 which extended various 2019 and 2020 OZ Program deadlines and testing dates – generally through December 31st. The extended relief under 2021-10 is generally through March 31, 2021.

Details of the relief given by Notice 2021-10 are outlined below:

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Year-End Tax Planning In A Year Of Political Uncertainty

Year-End Tax Planning In A Year Of Political Uncertainty

Cash basis taxpayers have a large number of ways to control their 2020 reported taxable income which is even more important this year since we may be moving from historically low tax rates to much higher rates post-2020.

While a Biden victory appears fairly certain, we find ourselves in the position of not knowing whether the Democrats or Republicans will be controlling the Senate.  The two federal Senate seats in Georgia will not be determined until January leaving us with significant tax planning uncertainty.  These seats are unsettled since neither candidate won over 50% of the votes cast. The Republicans just need one of these seats to control the Senate, while the Democrats must win both seats.

Senate control is critical to determining whether the Biden Administration will be able to push though their promised tax increases (see attached summary) including increasing ordinary tax rates (from 37% to 39.6%) and long-term capital gain rates (from 23.8% to 39.6%) for taxpayers with more than $400,000 and $1,000,000, respectively, of taxable income.

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Opportunity Zone Funding Extension

Opportunity Zone Funding Extension

The key components of Notice 2020-39 (issued 6/04/2020) are listed below:

Notice 2020-39

  • This notice extends the termination date of the 180-day reinvestment period. The termination of the 180-day reinvestment period would otherwise end between April 1, 2020, and December 31, 2020, will now have until December 31 to fund the Qualified Opportunity Fund (QOF). The prior COVID extension was July 15, under Notice 2020-23.
    1. There are significant 2019/2020 long-term tax planning opportunities and a unique situation where a taxpayer might file a return (current extended due date – October 15) before funding their QOF. Amended returns will be allowed if the taxpayer had not estimated the funding amount before filing their return.
    2. This extension will avoid complications associated with the early adoption of the Final Regulations for taxpayers with pre-March 15th, 2020 gains.
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