Here at Camuso CPA, we offer a wide array of tax services for real estate investors including tax preparation and tax planning. If you are interested in how this might specifically benefit your business or portfolio, please don’t hesitate to reach out in detail today to schedule a free initial consultation regarding your specific facts and circumstances.
What is an Opportunity Zone?
An Opportunity Zone is a community nominated by the state and certified by the Treasury Department as qualifying for this program. As of June 14, 2018, the department certified zones in all 50 states, Washington, D.C., and U.S. territories.
How does this program work?
To defer a gain, a taxpayer has 180 days from the date of the sale or exchange of appreciated property to invest the realized gain into a Qualified Opportunity Zone Fund. The fund then invests in Qualified Opportunity Zone Property.
The taxpayer may invest the return of principal as well as the recognized capital gain, but only the portion of the investment attributable to the capital gain will be eligible for the exemption from tax on further appreciation of the Opportunity Zone Investment. The Opportunity Zone program allows for the sale of any appreciated assets, such as stock with a reinvestment of the gain into an Opportunity Zone Fund. There is no requirement to invest in a like-kind property to defer the gain.
Qualified Opportunity Zone Fund
A Qualified Opportunity Zone Fund is any investment vehicle which is organized as a corporation or a partnership for the purpose of investing in qualified opportunity zone property (other than another qualified opportunity fund) that holds at least 90 percent of its assets in qualified opportunity zone property.
What To Know About Tax Implications
It is important to note that the tax cannot be deferred indefinitely – only until 2026. Any tax due on capital gains invested in the fund within the 180-days is deferred until the fund is divested, or December 31, 2026, whichever occurs first. Qualifying for deferral does not require an intermediary, and the taxpayer has 180 days from a sale to invest the gains into an Opportunity Zone Fund.
The new program offers a deferral of short or long-term capital gains tax due, a potential reduction of short and long-term capital gains tax due, and lastly a potential permanent exclusion from taxable income for any capital gains generated in any qualified investment made in the Opportunity Zone Funds.
If investment in the fund is held at least 5 years, there will be a 10 percent basis step up, while if the investment is held at least 7 years, the basis step up will be 15 percent. If the investment in the fund is held for at least 10 years, the taxpayer is exempt from paying any capital gain on the sale of the newly created opportunity zone fund investment.
Here at Camuso CPA, we do have the ability to offer tax preparation and planning services to our real estate clients. If you are interested into how this might benefit your business or portfolio, please don’t hesitate to give us a call today. One of our friendly and knowledgeable representatives will be happy to answers any questions you have.