If you are in the real estate industry, you have probably heard about Opportunity Zones (the “OZProgram”). If you haven’t, you should get up to speed (very!) quickly since these two unassuming sections of the Internal Revenue Code of 1986, as amended (the “Code”), which were added as part of 2017 Tax Reform, have cracked wide open a new investment structure that results in significant tax benefits to investors.
There is a narrow window to get the maximum tax benefits though, and the clock is already ticking…
In a nutshell, here is the timeline and the associated tax benefits:
- First, an investor sells an existing appreciated asset.
- Second, the investor invests the gain portion of the sale proceeds into a Qualified Opportunity Fund (“QOF”) within 180 days.o
TAX BENEFIT #1 – The investor defers the entire amount of the gain that is reinvested into the QOF.
- Third, the investor pays tax on the deferred gain at the earlier of (i) the sale of its interest in the QOF, or (ii) December 31, 2026.o
TAX BENEFIT #2 – If the investor has held its QOF investment for at least 5 years,10% of the deferred gain is permanently forgiven. If the investor holds its QOF investment for at least 7 years, an additional 5% (for a total of 15%) of the deferred gainis permanently forgiven. (Note that to get the 7 year benefit, an investor must invest in aQOF no later than December 31, 2019.)
- Fourth, the investor sells its interest in the QOF at exit.o
TAX BENEFIT #3 – If the investor holds its QOF investment for at least 10 years, there is no tax at all on the gain realized by the investor at exit. So naturally, everyone’s next question is: How do I do this?
In order to get to know how, please read the whole article by clicking here: Whiter Paper – Opportunity Zone Roadmap_1
Duval and Stachenfeld LLP White Paper. The DS Road Map to OZ – Just Follow the Yellow Brick Road. October 2018