New Tax Strategy - QO Funds - Defer income & tax (even 2017)

[Ryan Easley]

I have been closely following the developments around Qualified Opportunity Funds/Zones for the last bit now.  Everyone has pretty much been on hold until we get more guidance from the IRS; but, yesterday they updated their FAQ to indicate that even gains from 2017 can be deferred, even if the '17 return has been filed.

The gotcha here is that the gain amount (just the gain amount; not the entire proceeds unlike a 1031) needs to be invested in a QO Fund within 180 days. Functionally, this means that as of today only sales on/after 12/10/2017 are still eligible for the deferral and that ticks on every day.

Check out the FAQ above or § 1400Z-2 for more info; but, essentially congress is trying to unlock the trillions of dollars of unrealized capital gain and put that money to work in designated opportunity zones. About 10% of all census tract are QO Zones so this is a pretty wide swath of the nation.

Benefits to the Investor:

• Deferral of the capital gain income invested until the earlier of the date the fund is sold or 12/31/2026
• 10% Basis step up in year 5
• 5% Basis step up in year 7
• After holding for 10 years, Basis = FMV and no gain is recognized on sale.

There is still a lot that needs to shake out between here and there; but, (as of now) the only way to preserve the option of the deferral is to get funds invested into a QO Fund within 180 days.

Hopefully your tax people are on the spot with this; but, it's so new, cut them some slack if they aren't.  Either way you are definitely going to want some help to confirm this would make sense for you.  Hope this saves you some tax dollars.

[Michael Plaks]

Anybody else besides me sees a 10-mile "FRAUD" sign all over this? 

I'm not talking about the law, it is real. I'm talking about the wide open gates for abuse with self-certification and such.