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How can I best use the working capital safe harbor?

How can I best use the working capital safe harbor?


Answers
  • Ed Mofrad
    May 08, 2019

    Depends on your overall goal. What is meant by "best use"?

  • Phil Jelsma
    April 28, 2019

    If an investor sells an interest in one fund and purchases another fund within 180 days, the gain continues to be deferred, but the 10 year holding period re-starts on the date the new fund is purchased.

  • Paul Wassgren
    April 28, 2019

    A QOF may dispose of an asset within the fund, but must reinvest the proceeds within one year. At the investor level, an interest in the QOF must be held for 10 years to secure all of the tax benefits.

  • Blake Christian
    April 24, 2019

    Treasury is still mulling over whether the gain from an early (pre-10-year) disposition can be rolled into another investment without triggering income tax. They seem to be attempting to resolve that in taxpayers' favor, but they are unsure whether they have the authority under the code/committee reports. The new regulations do provide relief from for purposes of not counting the proceeds from an early disposition as non-QOZ property (e.g., for the 70%/90% semi-annual tests). So as along as the QOF reinvests the funds within 12 months and they invest in financial instruments with maturities of 18 months or less, they will be counted as QOZ property.

  • Blake Christian
    April 24, 2019

    That is a very fact-specific question. The whole benefit under the working capital safe harbor provisions is to thoroughly and accurately (as much as possible) project your project or business funding. The IRS has the ability to audit actual vs. projections, so you cannot "sandbag" your projections. However, it is best to be conservative and build in some cushion. The new regulations (tranche II) give clearer guideline on how the working capital rules apply to business operations vs. real estate projects.

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