Learn about the tax incentives available to you through QOZ Fund investments.
There are a wide variety of capital gains, even those realized in 2019, that may qualify for investing in a tax-advantaged Qualified Opportunity Zone (QOZ) Fund. Though extended in light of the coronavirus pandemic, tax season is here, meaning that now is the time to consider tax mitigation strategies.
Here’s an important quick fact: QOZ Fund investments can come from the capital gains generated from the sale of any asset, including businesses, securities, real estate, collectibles, etc. And capital gains eligible for QOZ Fund’s investment can be either short-term or long-term in nature.
Don’t Ignore 2019 Capital Gains
If a pass-through entity realized a gain in 2019 but did not reinvest the gain, the party to whom the gain was distributed can consider investing in a QOZ Fund to mitigate tax implications. Pass-through entities include partners in a partnership, members of an LLC, shareholders of an S Corporation, and beneficiaries of a trust, among others.
Keep in mind that the deadline for investing such gains is June 28, 2020, regardless of when in 2019 the pass-through entity realized the gain. For other entities, for example, individual ownership, capital gains generated from the sale of any asset are eligible for QOZ fund investment within 180 days of such realization.
Important Points to Remember:
Cash is fungible in QOZ Fund investing, unlike 1031 like-kind exchanges. Even if the individual spent or otherwise distributed the capital gain, any other source of cash up to the full amount of the capital gain is eligible for investment in a QOZ Fund.
Tax benefits for QOZ Fund investors include deferral, reduction, and elimination: The federal capital gain tax due on the contributed capital may be deferred until December 31, 2026; the federal capital gain tax due on the contributed capital may be reduced by 10%; and the federal capital gains tax on any gain in the value of the QOZ Fund may be eliminated if the investor holds the investment for at least ten years.