Federal Opportunity Zone Program

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The 2017 Tax Cut and Jobs Act (2017 Act) created the federal Qualified Opportunity Zone program (QOZ or Program) effective in 2018 and operative up to the next three decades.

Beginning January 1, 2018 through December 31, 2026, individuals, corporations, REITs, and pass-through entities can sell their appreciated capital assets and elect to reinvest the resulting capital gain into a Qualified Opportunity Fund (QOF). The federal tax impact of participating in a QOF includes deferring qualified gains for up to eight years and permanently exempting up to 15% of the original federal gain and 100% of the post-reinvestment gain – after holding the investment for seven and ten years, respectively. State conformity to this law is varied and requires a careful state-by-state analysis.

The Program offers a powerful and flexible tax savings and diversification tool for taxpayers generating capital gains. To participate, taxpayers must roll all (or a portion) of their capital gains (whether short-term or long-term) into a QOF. The QOF must then timely (180-day window discussed below) invest the gain into undeveloped or developed real estate, a new or existing QOZ-based business, or into other qualified QOZ property. While most of the focus is on real estate projects, the Program also provides significant potential benefits for taxpayers investing in active businesses that operate primarily within a QOZ. A future sale of an active business at multiples of 6- to 8-times EBITDA can easily eclipse a healthy real estate appreciation.

Written by TaxConnections Admin | Posted in Federal Opportunity Zone Program

Blake Christian - Top Ten Things You Need To Know

This post discusses the top ten things you need to know about the Federal Opportunity Zone Program.

1. Which Gains Are Eligible? – The Deferred Tax Gain can be related to a wide variety of capital assets sold by the investor, ranging from: the sale or disposition of land, developed real estate, stock or bond portfolios, artwork, collectibles, Bitcoin or other cryptocurrencies, as well as other tangible and intangible assets. The Deferred Tax Gain must be reinvested into a Qualified Opportunity Zone Fund (QOF) within 180 days of recognizing the tax gain on sale (note there are beneficial timing rules for gains reportable from a partnership). Timely reinvestment will generally allow deferred gain reporting until the earlier of December 31, 2026, or the date the QOF is sold.

2. Qualified Opportunity Fund Requirement -Taxpayers wishing to participate in the QOZ program must do so through a QOF. The statute provides a fairly straightforward process to meet the QOF requirements. The entity must be either: i) a C Corporation, ii) an S Corporation or iii) a Partnership (including an LLC electing to be taxed as a partnership). A QOF can represent a single investor or multiple investors.
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Written by Blake Christian | Posted in Federal Opportunity Zone Program