Resource: Qualified Opportunity Zone Investments Can Still Help 2019 Tax Returns

Thank you Griffin Capital for this Resource.

Are you aware of the wide variety of capital gains that may qualify for investing in a tax advantaged Qualified Opportunity Zone (“QOZ”) Fund, even gains realized in 2019,
before recent market turmoil? With tax fling approaching, now is an opportune time for a discussion around tax mitigation strategies.

QOZ Fund Investing Quick Fact:

  • QOZ Fund investments can come from the capital gains generated from the sale of any asset, including the sale of real estate, businesses, securities, collectibles, etc.

Do Not Ignore 2019 Capital Gains:

  • If a pass-through entity realized a gain in 2019 but did not reinvest the gain, the individual to whom the gain was distributed may consider investing in a QOZ Fund to mitigate the tax implications.
    • This includes partners in a partnership, members of a limited liability company, shareholders of an S Corporation, and beneficiaries of a trust, among others.
    • The deadline for investing such gains is June 28, 2020, regardless of when in 2019 the pass-through entity realized the gain.
    • For entities other than a pass-through entity (e.g. individual ownership), capital gains generated from the sale of any asset (e.g. securities) are eligible to be invested in a QOZ Fund within 180 days of such realization.

Do Not Forget:

  • Capital gains eligible to be invested in QOZ Funds can be either short term or long term in nature.
  • Unlike 1031 like-kind exchanges, cash is fungible in QOZ Fund investing; even if the individual spent or otherwise allocated the capital gain, any other source of cash up to the full amount of the capital gain can be invested in a QOZ Fund.
  • Triple-layer tax benefits for QOZ Fund investors include deferral1, reduction2, and elimination3
  • Based upon our analysis, the combined tax benefits of a QOZ Fund investment made in 2020 can add approximately 400 basis points in pre-tax equivalent yield to a real estate investment located in a QOZ relative to the same real estate investment not located in a QOZ – over a ten-year holding period.4

This information should not be construed as tax advice. Investors should consult their own tax advisors to determine their individual benefits in a QOF investment.

  1. Deferral until December 31, 2026 of the federal capital gain tax due on the contributed capital.
  2. Reduction of 10% of the federal capital gain tax due on the contributed capital.
  3. Elimination of federal capital gains tax on any gain in the value of the QOZ Fund, provided the investor holds the investment for a minimum of ten years.
  4. This is an estimate calculated by Griffin Capital Company, LLC and there is no guarantee such additional return will be realized. This calculation represents the incremental, pre-tax, simple average annual return necessary for the traditional investment to achieve the same IRR as the QOF investment. The potential additional return can vary greatly depending on the tax rate of the state you are a resident of.

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