All Forum Posts by: Ryan Carriere

New IRS guidance and proposed regulations were issued yesterday for Opportunity Zones!

I'm going to take a stab at summarizing some of the main elements of the proposed regulations given to us by the IRS yesterday. If other CPA's and tax professionals would like to chime in on their insights on items I don't mention or if something seems inaccurate, please feel free to comment so I can also learn more about this. Below is my summary of some clarifications discussed:

1. What type of gains? Gains eligible for deferral is clarified to be capital gains, not ordinary gains. They must be capital gains that would be recognized and from a sale or exchange with an unrelated party.

2. Who is eligible? Taxpayers that are eligible for this deferral are those that recognize capital gains for federal income tax purposes. 

For example: Individuals, C Corps (including RIC's, and REIT's), Partnerships, Common Trust Funds, Qualified Settlement Funds, Disputed Ownership Funds, etc.

3. What type of investment? The investment in the Qualified Opportunity Fund must be an equity interest (including preferred stock and special partnership allocation), but not debt.

4. When does the 180-day rule begin? The 180-day rule begins on the date which the gain would be recognized for federal income tax purposes.

5. What type of income will be recognized when the gain deferral period ends? Tax attributes of the gain (i.e. short-term, long-term gain) that are deferred are preserved through the deferral period until income is recognized. 

For example: if the gain you are deferring would be classified as a short-term capital gain on that year's tax return, then when the deferral period ends (when you sell your investment in the QOF) any gain that should be recognized would be classified as a short-term capital gain.

This is not meant to be a comprehensive list of all the details, but just a small summary of some of the main points I identified during my first read through the proposed regulations.

I hope this is helpful!

I think @John Woodrich and @Armin Nazarinia have it right.

Use one LLC that you're both 50/50 owners, and keep it simple.

Thanks @Armin Nazarinia!

@Brad Cornell, if you want to talk with another CPA, I'm more than happy to talk with you as well!

As Armin mentioned, I'm a CPA and real estate investor myself. Feel free to send me a message if you would like to setup a phone call or meetup!

I read this paragraph from a Journal of Accountancy article that was published yesterday and found it helpful to understand why they're using Section 162, "the IRS decided to apply the definition of “trade or business” contained in Sec. 162(a) because the definition of trade or business under Sec. 162 is derived from a large amount of case law and administrative guidance interpreting the meaning of trade or business in the context of a broad range of industries. This will provide for administrable rules that are appropriate for the purposes of Sec. 199A and that taxpayers have experience applying, and the IRS believes it will reduce compliance costs, burden, and administrative complexity." 

Here's the link to that article: https://www.journalofaccountancy.com/news/2018/aug...

Thanks for setting this up Kurt!