tax benefits for deferred gain in QBO -invested in 2022

Technical topics regarding tax preparation.
#1
Keyad22  
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Bay Area, California
Hi Pros,

I summarized the following incentive of reinvested in the qualified opportunity zones:
1. Temporary capital gain tax deferral: ends upon 12/31/2026 or an earlier sale.
2. A step-up in basis: Investment held for 5 years – Basis increased by 10% of deferred gain and Investment held for 7 years – basis increased by 15% of deferred gain
3. Permanent exclusion: Investment held for 10 years – Basis equal to fair market value.

Now, a taxpayer sold stocks with 2mm LTCG in July 2022 and plan to reinvest in the QBO within 180 days and plan to hold over 10 years, projected sales proceeds 6mm in the future.

The tax forecast for this long-term project:
1. No capital gain recognized in 2022
2. Deferred gain 2mm must be recognized as the end of 12/31/2026, no partial exclusion since the investment in QBO is held less than 5 years.
3. The basis of the investment in QBO is 2mm from 12/31/2026
4. Sold the investment in 2033 with projected sales proceeds 6mm. The 4mm gain is permanently excluded.
5. The investment lost the step-up basis benefit since the holding period is less than 5 years by the end of 2026.
6. If the investment decreases in the FMV to 1.5mm as of 12/31/2026, the gain recognized as of the end 2026 is 1.5mm and its FMV rise again to 6mm when the investment disposed in 2033, the basis will be the FMV and all the gain after 12/31/2026 will be excluded.

Please point out if I missed any factors here.

Thank you very much!
 

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