We have been asked a lot of questions about Qualified Opportunity Zones recently. Below is some information you may find useful. Please contact our office if you have any specific questions or would like further information.
- You have 180 days to re-invest capital gain into a QOZ to get the related tax benefits (see 3 below).
- The QOZ property must be held in a Qualified Opportunity Fund (QOF), like a newly formed LLC, to hold the eligible investment property.
- These come with three new federal income tax incentives:
- the temporary deferral of capital gains (no later than 12/31/26), to the extent the gains are reinvested into a QOF
- the partial exclusion of previously deferred gains when certain holding period requirements in a QOF are met (10% for 5 years and 15% for 7 years). FYI deferred gains, less applicable 5- or 7-year exclusions, must ultimately be recognized no later than 12/31/26 (this is why they are ‘temporary’ in (1) above); and
- the permanent exclusion of post-acquisition gains from the sale of an investment in a QOF held longer than 10 years. In other words, if the investor holds the fund for at least 10 years, any ‘appreciation’ in value will be tax exempt if the investor sells his/her share of the QOF as per the regulations. If the underlying assets are sold and not the investors actual interest in the QOF that would be fully taxable. Basically, they get a step-up in their tax basis to fair market value at sale…this step-up would apply to receivable and inventory as well and depreciation recapture would be avoided.
- It is likely in the future that Oregon will decouple from this federal tax incentive so be prepared to not get the same deferral/exclusion/step-up in basis for Oregon tax purposes.
- These are just a few highlights…there are many other details to consider.