In December, 2021, we received 90k in Capital Gains from a mutual fund. The following day, the gains were automatically reinvested within the fund—all unbeknown to us. We would now like to pull that 90k in cash from the mutual fund and use it to buy land in an OZ. The question is, could that money be viewed as income and taxed again in 2022?
Doesn't sound like it. Sounds like you can avoid the tax if you invest an equivalent amount of capital gains into a QOF. The reinvestment into the mutual fund would not lead to a "double taxation" event. You'd be able to defer the capital gains passed through from the mutual fund, even in spite of the reinvestment of that specific cash back into the fund. In the OZ regime, money is fungible, unlike in the 1031 regime, where the same capital must be used to reinvest in real estate.
The additional shares that were acquired with the reinvestment of the capital gain should have a tax basis that is equal to the capital gain recognized. Accordingly, you generally would not recognize gain (or loss) from a disposition of those additional shares, except to the extent of subsequent appreciation (or depreciation) in the value of the shares. As an alternative, keep in mind that (unlike a 1031) you aren't required to invest the capital gain proceeds in a qualified opportunity fund (QOF). You can hang onto your additional mutual fund shares and use $90K from another source to fund the QOF to defer the capital gain recognized from the mutual fund.
First, you have only six months from the date the capital gain is deemed to occur within which to roll into an Opportunity Zone. So depending on when in December your capital gain event occurred, you might be able to roll into an Op Zone. The problem is as you have noted that your gains were reinvested and subject to tax for 2021. To now sell the fund shares equivalent to your gain is quite problematic, as that could be a new capital gain (possibly short term, depending on the fund accounting. I am not your legal counsel and I am not offering you legal advice, but I find your situation problematic for claiming a capital gain rollover.
The gains would likely be tainted by that reinvestment into a non-QOF. If those gains were first invested in an actual QOF, then it could be reinvested into another QOF without much concern.
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