What is the tax benefit for “qualified opportunity zone”

Technical topics regarding tax preparation.
#1
Keyad22  
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Hello everyone,

New paper talks about tax benefits about opportunity zone. Clients walk in with newspaper ask us about.

Yes, there are some benefits:
Temporary gain deferral election.
Recognition of deferred gain.
Permanent gain exclusion election.
But does the tax payer have to invested in QO Funds to enjoy the tax benefits?

I read this “A QO Fund is an investment vehicle organized as a corporation or a partnership for the purpose of investing in a QO Zone. The QO Fund can't invest in another QO Fund and has to hold at least 90% of its assets in QO Zone property (i.e., any QO Zone stock, any QO Zone partnership interest, and any QO Zone business property). A QO Zone property has to meet many requirements, including that substantially all of the entity's business property is used in a QO Zone. A penalty can apply to the QO Fund if it fails to meet the 90% requirement. “

Does that mean taxpayers have existing business in the QO zone but without QO fund cannot take any tax benefits?

Thank you,
 

#2
Keyad22  
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In new released Rev. Rul. 2018-29, 2018-45 IRB, it lists the benefits and QO Fund. IRS also released form 8996 "qualified opportunity fund", which investment vehicle will use to self-certify as QOFs.

Questions:
Does QOF have to be corp or partnership? Look like.

For existing commercial property owners who own properties 100% personally, can they set up a new partnership (Husband and Wife) and contribute the properties to the partnership to qualify for QOF?

Investors hold on their QOF funds for at least 10 years may qualified to increase their basis to FMV on the date sold. What a tax saving!

Did I miss something here?
 

#3
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Keyad22 wrote:Questions:
Does QOF have to be corp or partnership? Look like.


IRC Sec 1400Z-2(d)(1) In General

The term "qualified opportunity fund" means any investment vehicle which is organized as a corporation or a partnership for the purpose of investing in qualified opportunity zone property (other than another qualified opportunity fund) that holds at least 90 percent of its assets in qualified opportunity zone property, determined by the average of the percentage of qualified opportunity zone property held in the fund as measured—


I haven't been through IRC Sec 1400Z-1 and Sec 1400Z-2 (and the proposed regs) yet but it's a priority on my to-do list. This week/weekend is IRC Sec 199A and all of its proposed regs.
 

#4
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This article explains practically everything:

https://www.forbes.com/sites/anthonynit ... 470df0d623
 

#5
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Does anyone know if there's anything that prevents a person (assume a partner) who receives cap gain on k-1 from investing in 2019 and selling in 2019 for the sole purpose of deferring a capital gain from 2018 to 2019. The guy has high AGI and max cap gain rate of 20% in 2018 and would be taxed 15% max cap gain rate in 2019. This seems like an easy way to abuse the system. Can he turn around and sell the QOF a week later and get the deferral.

If he can do it anybody know the fees for investing in QOF and what they're like?

thanks,
terry
 

#6
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Thoughts on my post above?
 

#7
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Per the IRS website:
Q. How do Opportunity Zones spur economic development?

A. Opportunity Zones are designed to spur economic development by providing tax benefits to investors. First, investors can defer tax on any prior gains invested in a Qualified Opportunity Fund (QOF) until the earlier of the date on which the investment in a QOF is sold or exchanged, or December 31, 2026. If the QOF investment is held for longer than 5 years, there is a 10% exclusion of the deferred gain. If held for more than 7 years, the 10% becomes 15%. Second, if the investor holds the investment in the Opportunity Fund for at least ten years, the investor is eligible for an increase in basis of the QOF investment equal to its fair market value on the date that the QOF investment is sold or exchanged.

I'm not sure I understand your question, but maybe the above helps.
 

#8
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Thank you Seaside. I was just wondering if it was considered abusive to use this provision to shift a capital gain from one year to the next, by holding the investment for say 30 days or less.

However, I hear currently none of the larger brokerage houses have a single QOF product to recommend. So it doesn't matter what the tax deferral opportunities are if there are no funds with a history and reputation in order to make an investing decision.
 

#9
WEISSEA  
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"So it doesn't matter what the tax deferral opportunities are if there are no funds with a history and reputation in order to make an investing decision."

From Spidell There is a great deal of investor enthusiasm for these funds. Do a quick internet search, and you’ll find that dozens of these funds have arisen in just the short time since enactment of the program.
 

#10
Keyad22  
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Now I have two clients in the bay area Opportunity Zone. One is existing rental business LLC. The other is also an existing LLC but is going to demolish the existing rental property and build a 50 units building. How to set up a Qualified Opportunity Fund to get the tax benefit. Tried to contact the State about more information and was transferred through different agents and did not get any answer. Any one has any guidelines and forward to me? Thank you!
 

#11
sjrcpa  
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The fund is a federal designation, not state as far as I know. Check irs.gov
 

#12
Keyad22  
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Thank you!
 


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