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Why can most QOF only accept deferred gain prior to Jan. 1, 2027?

What happens after that? Why can some accept it after that date?


Answers
  • Valerie Grunduski
    September 23, 2019

    The program expires Dec. 31, 2026, and no gain deferrals are available after this date. As such, a gain incurred on Dec. 31, 2026, would be eligible for deferral during the 180-day period starting on such date. After this date, a QOF can still accept equity investments, but it will no longer be eligible for the step-up in basis after a 10-year hold.

  • Wendi Kotzen
    August 22, 2019

    The code provides that capital gains recognized through Dec. 31, 2026, are eligible to be invested in a QOF. Such gains would have to be timely invested in a within 180 days. So the last day a timely investment in a QOF could be made would be June 28, 2027. As you know, if a qualifying QOF investor holds its QOF interest for at least five years on or before Dec. 31, 2026, 10% of its roll-over gain is eliminated and if a qualifying QOF investor holds its interest for at least seven years on or before Dec. 31, 2026, another 5% of its roll-over gain (for a total of 15%) is eliminated. On Dec. 31, 2026, depending on how long the qualifying QOF investor held its QOF interest, it must recognize 100%, 90% or 85% of its roll-over gain. Any investment after 2019 is not eligible for the seven-year benefit and any investment after 2021 is not eligible for the seven-year or five-year benefits. The other benefit to QOZ investors is if a qualifying QOF investor holds interest in the QOF for at least 10 years and then it sells QOF interest, or the QOF sells its property and the QOF investor does not recognize any additional gain.

  • Matt Campbell
    August 20, 2019

    I believe cap gain can go into a QOF after Jan. 1, 2027, to maximize the benefits, though many are marketing to get the additional 10% to 15% reduction in the initial capital gain. That's not possible after Jan. 1, 2027. That said, no one should be doing an Opportunity Zone deal solely to get 10% to 15% reduction in capital gains taxation. The big benefit is the tax-free exit and whether the deal pencils out as profitable, absent the Opportunity Zone tax benefits.

  • Blake Christian
    August 20, 2019

    This is just driven by the statute and regulations. Technically, taxpayers can elect to defer qualifying gains recognized for tax purposes through Dec. 31, 2026. Therefore, depending on the type of gain and whether the gain was related to an asset held directly by the taxpayer, in which case the 180-day period begins on the date of sale/ tax reporting (unless it is an IRC Section 1231) or an asset that was held by an S corp, LLC/partnership, or non-grantor trust and reported on a K-1 (in which case the gain is generally reportable on Dec. 31, the start of the 180-day period). Therefore, some taxpayers will have until late June 2027 to reinvest and participate.

  • Brad Cohen