RubinBrown Partner Tony Nitti authored an article on the tax ramifications related to opportunity zones. This article appeared in The Tax Adviser.
In summary, the article details that the newly created qualified
opportunity zones offer an intriguing tax planning option for investors
and a potential boon for distressed communities.
The Tax Adviser article discusses the tax rules regarding investing
in qualified opportunity zones through qualified opportunity funds,
The Tax Cuts and Jobs Act enacted new Sec. 1400Z-2, which provides a
number of benefits designed to encourage investment in areas in
low-income communities that are designated as qualified opportunity
- Under Sec. 1400Z-2, taxpayers may be able defer realized
capital gains by reinvesting them in qualified opportunity funds (QOFs)
that conduct or own trades or businesses with property and business
activity within the QOZs. These deferred gains may then be partially
excluded from gross income if certain holding requirements are met.
Taxpayers eligible to defer gains under Sec. 1400Z-2 include
individuals, C corporations, passthrough entities, and trusts and
estates. Gain that is eligible to be deferred is gain that is “treated
as capital,” would be recognized for federal income tax purposes before
2027, and does not arise from a sale or exchange with a related party.
Generally, within 180 days of a sale or exchange generating eligible
gain, an eligible taxpayer may elect to reinvest all or a portion of the
gain into a QOF, deferring its recognition until Dec. 31, 2026, or, if
earlier, the date the taxpayer sells or exchanges the QOF interest.
Once the taxpayer holds the QOF interest for a five-year period, 10% of
the deferred gain is permanently excluded. Once the holding period
reaches seven years, an additional 5% of the gain is excluded. If the
holding period reaches 10 years, the gain arising after the 2026
recognition date is entirely excluded.
QOFs must hold at least 90% of their assets as QOZ property, which
includes QOZ business property (QOZBP), QOZ stock, or QOZ partnership
Even with the release of proposed regulations under 1400Z-2, many
practical questions remain for taxpayers who are considering an
investment in a QOF.
For more information about the Tax Cuts & Jobs Act, or the related
opportunity zones, please contact one of RubinBrown’s Real Estate
Services Group professionals.
Readers should not act upon information presented without individual professional consultation.
Any federal tax advice contained in this communication (including any
attachments): (i) is intended for your use only; (ii) is based on the
accuracy and completeness of the facts you have provided us; and (iii)
may not be relied upon to avoid penalties.
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