Reinvesting Wholesale Profit into a QOZ

[Chris Springer]

I am having difficulty finding an answer to this question... If I wholesale a property (true wholesale where I never gain possession, but do get the assignment fee), does the income count as a capital gain that I could then reinvest in a Qualified Opportunity Zone to shelter it? If not, I assume one way to make it work would be to whole-tail it, where I possess it shortly, and then sell it to make the income qualify as a taxable gain... Although, depending on the closing fees vs the taxable profit, that could potentially be a wash.

[Eddie L.]

***Not a CPA and no filing tax return experience for others***

1. Wholesaling is ordinary income. It's treated as inventory similar to selling shoes i.e. no capital gain. It would therefor not be considered an "eligible gain" for QOZs.

2. Let's assume you do have capital gains from another sale of real estate. You can defer the capital gain into a QOZ until 2026 in which it will be treated as if it was sold at fair market value in that year and you'll have to pay taxes then. The way I read it, if you continue to hold the property past the 10 year mark then any additional gains sold then will be tax free as you can then elect the basis of the property to be adjusted up to the fair market value at the time of sale.

References

https://www.biggerpockets.com/...

https://www.biggerpockets.com/...

https://www.irs.gov/credits-de...