Qualified Opportunity Zone program was enacted as part of the Tax Cuts and Jobs Act of 2017 (“TCJA”) to provide for tax-advantaged investment into certain designated low-income census tracts.
Investments in Qualified Opportunity Zones (“QOZs”) have three main federal tax advantages:
- Temporary deferral of realized capital gains until December 31, 2026;
- A potential basis adjustment of up to 10% of initial deferred capital gain (for investments made after December 31, 2019 and before December 31, 2021); and
- Permanent exclusion from taxation for any appreciation over and above the initial investment into the Qualified Opportunity Fund (“QOF”) for investments held for at least ten years.
To take advantage of the deferral available, cash equal to the deferred capital gain amount needs to be invested into a QOF within 180 days of the date of the transaction generating the gain. There are special rules for gains allocated to partners in partnerships or shareholders in S corporations.
For 2020, there is some relief available due to the on-going global pandemic. If the 180 day reinvestment period ends between April 1, 2020, and December 31, 2020, the 180 reinvestment period is automatically extended until December 31, 2020. As a result, taxpayers with capital gains from late 2019 or early 2020, who were believed to be out of time to reinvest those capital gains and defer taxation on them under the QOZ program, can now reinvest those gains and receive the tax deferral benefits.
For questions or further information, contact a member of our Tax Services Team.
Opportunity Zones Resource Center