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Extension of Relief for Qualified Opportunity Funds

Taxpayers wishing to invest in a qualified opportunity fund to defer capital gains recognized in 2019 and until the 3rd quarter of 2020 now have until March 31, 2021 to do so.

IRS Notice 2021-10 was issued on January 19, 2021, further extending several deadlines having to do with qualified opportunity zones that had been previously extended, also by IRS Notices.

The portion of the notice extending the 180-day qualified opportunity fund investment period from the previous December 31, 2020 to the new March 31, 2021 is probably most relevant to investors.

With the issuance of this notice, taxpayers who recognized capital gains in 2019 have the opportunity to defer, as well as render tax-free, recognized gains by investing in a Qualified Opportunity Fund by the end of the extended reinvestment period.

Any recognized capital gain occurring on or after October 4, 2019 would be eligible for reinvestment by the newly extended March 31, 2021 date. Gains recognized on or after October 4, 2020 would be subject to the 180-day investment period.

This could be of particular interest to taxpayers reporting capital gains from a 2019 partnership K-1, as they can elect to begin the 180-day reinvestment period on the partnership’s filing deadline without extension. Therefore, with a partnership due date of March 15, 2020, the 180-day period would end on September 11, 2020, a date that falls within the date of the new notice and is now eligible for extension to March 31, 2021.  This could be a powerful postmortem tax planning tool and should be considered.

In addition to the reinvestment period, extensions of time were given for the substantial improvement period, the 90% asset test, and the working capital safe harbor.

Author: Stu Koch | skoch@withum.com

Please reach out to a Withum real estate team member for further assistance.

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