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How can a Section 1231 gain be reinvested at the entity level rather than at the equity holder level?

Did the new regulations provide any further input about this reinvestment scenario?

  • Maria De Los Angeles Rivera
    August 15, 2019

    If a partnership realizes a net 1231 gain, it can elect to invest and defer the gain or can report the gain to its partners and then they will make the elections.

  • John Wegmann
    August 10, 2019

    Your question was addressed in the first set of regulations (Oct. 29, 2018). A partnership may elect to defer or all part of a capital gain to the extent it makes an eligible investment in a QOF by using Form 8949. The second set of regulations (May 1, 2019) provided no further guidance regarding this matter, but did clarify the general rule that the 180-day period for investing capital gain income from Section 1231 property in a QOF begins on the last day of the taxable year.

  • Pat Cardwell
    August 12, 2019

    If I understand your question properly, the investor or the entity leaves the investment in the current entity and the entity rolls the investment into the new investment. Or, the individual rolls the capital gain into the new operating zone fund. But I may be misunderstanding your question. I have not reviewed the regulations with this question in mind. But I will look again.

  • Guy Nicio
    August 12, 2019

    A Section 1231 gain can be reinvested at the entity level quite simply by the entity itself (e.g., a partnership) using its cash funds to invest in a QOF. The same timing rules apply to both the entity and individual. Under the current proposed regulations, you are not able to invest until after Dec. 31 of the year of the capital gain sale in order to reap the OZ tax benefits due to the Net Section 1231 gains/losses rule. But some professionals anticipate a clarification which may change this in the next round of regulations. No one knows for sure, unfortunately.

  • Matthew Rappaport
    August 11, 2019

    There remains a good bit of mystery surrounding the Section 1231 issues. Even the regulation itself does not quite match up with the statute. The regulations contemplate the ability to defer capital gain into a QOF at both the entity and individual level. Given the technical details of Section 1231, there is a lingering question as to whether any Section 1231 gain can even be eligible for deferral at the entity level. Look for the finalization of the second tranche of regulations, which ought to answer this question with much more clarity than we have now.