Part 6

Qualified Opportunity Zone

Although the capital gains rates are attractive, some taxpayers prefer to defer paying ANY tax to a later time. TCJA added a new way to defer the tax on capital gains for up to seven years by investing in a qualified Opportunity Zone. To take advantage of this tax deferral, you must invest the gain from the sale of a capital asset into an Opportunity Zone within six months after the date of sale.

For partnerships, the clock starts at the end of the partnership’s tax year. (Special timing rules apply to capital gains arising from the sale of trade or business property). Investing in an Opportunity Zone provides several tax benefits, including: – Tax on the initial capital gain is deferred until December 2026 (unless you sell the investment earlier);  – If the proceeds are invested in the fund for five years, 10% of the initial gain is not taxed;  – If the proceeds remain invested for an additional two years, another 5% of the gain is not taxed;  – In order to achieve the full 15% exemption, the investment must be made before December 31, 2019 (unless Congress extends that date);  – If you hold the Opportunity Zone investment for a full 10 years, any appreciation on the original investment is exempt from tax. 

The rules governing the tax treatment and benefits of Opportunity Zone investments are still in flux – at this point the IRS has issued only proposed regulations – but the advantages are quite real. 

If you do not wish to purchase property you can also buy into an Opportunity Zone Fund. These are so new that there are only a few funds available at the time of this writing.