How does secondary sales work for a partner who needs to divest before the end of the 10-year holding period?

Answers

• 

  Marko Belej

  Taft

  July 12, 2021

  A partner in a Qualified Opportunity Fund (QOF) who divests before the end of the 10-year holding period will have an inclusion event, which generally means that the partner will recognize gain equal to the amount realized from the divestment over his basis in the interest (which will have been increased by his 10% and 5% basis step-ups, if he has held the interest for at least five and seven years, respectively, and, if the divestment occurs after Dec. 31, 2026, the amount of his deferred gain).

• 

  Matthew Rappaport

  Falcon Rappaport & Berkman

  July 13, 2021

  The secondary sale will likely be taxed in full, minus any five- or seven-year benefit under the Qualified Opportunity Zone (QOZ) statute. The remaining partners ought to be unaffected.

• 

  David LeGrand

  LeGrand Legal

  July 12, 2021

  They lose the tax benefit of no income tax on gain from the fund.

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