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What happens with my investments when the Opportunity Zone program expires on Dec. 31, 2047?

How will the expiration of the Opportunity Zones designation impact existing investments? I have also heard that QOF investments can only be made before Jan. 1, 2027. Why?


Answers
  • John Wegmann
    August 10, 2019

    Your first question is, “What happens with my investments when the Opportunity Zone program expires on Dec. 31, 2047?” Under current law, if you have not disposed of your interest in a QOF by Dec. 31, 2047, you will not be eligible for the basis step-up at the time you do dispose of the QOF. However, since the entity will no longer be a QOF, I would argue that it will be eligible for a step-up in basis at the time of the owner’s death. They did consider user comments which suggested either allowing for a step up based on valuation or removing the time restriction, but determined that the first suggestion would be too subjective to allow and enforce and the second suggestion would be too onerous to administer. Your second question is, “How will the expiration of the Opportunity Zones designation impact existing investments?” The expiration of Opportunity Zone designations on Dec. 31, 2028 will not impact pre-existing investments in QOFs. Your third question is “I have also heard that QOF investments can only be made before Jan. 1, 2027. Why?" Incorrect. The latest gain subject to deferral would be on Dec. 31, 2026. As such, the last day of the 180-day period for investing that gain would be in late June 2027. Why? Because those are the dates set forth in the Internal Revenue Code and the regulations thereunder.

  • Brad Cohen
    August 09, 2019

    Program sunsets Dec. 31, 2016. If you enter the program before that date, you are good until you sell.

  • Maria De Los Angeles Rivera
    August 08, 2019

    If you keep the investment after 2047 you will not be able to elect the non-recognition of the gain on your investment. The investment must be done while the zone is designated as an Opportunity Zone, which is 10 years.

  • Matthew Rappaport
    August 07, 2019

    The expiration ought not to impact existing investments. The deadline for investment is based on the deadline to recognize deferred capital gain. As of now, based on the proposed regulations, any sale after Dec. 31, 2047 is not projected to qualify for tax benefits, though that may change upon finalization of the regulations.

  • Wendi Kotzen
    August 06, 2019

    In order to obtain the 10-year benefit, the basis step up to fair-market value after holding a qualifying QOF interest for at least 10 years, under the proposed regulations you must sell or exchange your interest in the QOF on or before Dec. 31, 2047, or the QOF must sell or exchange its interest in a QOZB in a transaction that produces capital gain on or before Dec. 31, 2047. The only part of the proposed regulations that taxpayers may not rely upon are those relating to the 10-year benefit. As a result, it is not clear precisely which types of sales or exchanges will enable a taxpayer to obtain the 10-year benefit other than a sale. For example, a tax-free transfer to a partnership technically is an exchange. However, we do not know if a taxpayer could transfer its qualifying QOF interest to a partnership after the taxpayer held that qualifying QOF interest for at least 10 years and get a step-up to fair-market value. We do know that as a general rule, a transfer of a qualifying QOF interest to an aggregator partnership is not an inclusion event that causes acceleration of the deferred gain but the IRS and Treasury have not