Tax Tips for Individuals Investing in Qualified Opportunity Funds
by Tonya Callison AuthorAn investment vehicle known as a qualified opportunity fund gets set up as a corporation or partnership. It makes investments in real estate located in qualified opportunity zones. Opportunity funds got established to stimulate investment in underfunded, low-income, and struggling communities. The state must first identify a community. Then, they get certified by the U.S. Treasury secretary before getting categorized as an opportunity zone. Another term for an investment entity engaged in real estate or company growth in "opportunity zones" is an opportunity fund. There are a few tips that you can follow when investing in QOFs.
- Choosing which gains to defer
If a taxpayer
invests in a Qualified Opportunity Fund within the 180-day window starting at
the date of sale or exchange, they may choose to defer paying tax on some or
all their capital gain. Any taxable gain invested in a Qualified Opportunity
Fund won't get realized until December 31, 2026 (when the 2026 return is due in
2027). Or until the fund interest gets sold or exchanged, whichever is first.
Taxpayers who defer gains through investments in Qualified Opportunity Funds will
get 10 percent step-up in tax. They get it after five years. They also get another
5 percent step-up after seven years, for a total of 10 percent or up to a
maximum of 15 percent of deferred gains.
2. Planning a recognition date way ahead
Until the
earlier December 31, 2026, the investor may postpone recognizing the capital
gain for U.S. federal income tax purposes. It should get noted that a taxpayer
who usually receives a reported capital gain from a flow-through entity, such
as a partnership, an S-corporation, or a trust or estate, has 180 days from the
end of the year to invest in a Qualified Opportunity Zone Fund. This is regardless of when
in the calendar year the flow-through entity itself realized its gain. As an
illustration, if a partnership firm generated a capital gain in March, the
180-day triggering date for each partner would be December 31st of
that year. They would each have until roughly June 28 of the following year to
make their Qualified Opportunity Zone investment.
3. Confirm the state laws
The law aims
to promote economic growth and employment creation in underdeveloped areas.
Federal tax provisions make up the QOF tax laws. All states do not follow the
Federal QOF deferral regulations. For instance, California and North Carolina
do not now conform, although New Jersey does. New York State and the City will
no longer honour the tax advantages of the federal QOF regulations as of the
2021 tax year. Additionally, some governments may have their own QOF programs
that could be useful.
Since opportunity
zone funds are still new, specific guidelines for investing in and taxing
qualified opportunity funds may vary. Investors interested in participating
should speak with financial and tax experts. All 50 states, Washington, D.C.,
and five U.S. territories currently have opportunity zones. State, county, and
census tract numbers get used to identifying zones.
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Created on Jul 6th 2022 02:22. Viewed 230 times.