15 May Is there still time to reduce & defer capital gains taxes from last year? YES!!

A provision in the Tax Cut & Jobs Act allows for the investment of capital gains into a Qualified Opportunity Zone (QOZ) up to 180 days after taking those gains. Also, partnerships, LLCs, and other pass-through entities have 180 days after the end of their tax year, December 31. So, if you realized capital gains at the end of last year, you have until the end of June to potentially lower your capital gains tax and push out paying those taxes for 7 years.

Taxes Can Be Reduced AND Deferred.

Gains invested for 5 years in a QOZ are granted a 10% step-up in cost basis. If invested for 7 years, those gains will receive an additional 5% step-up, for a total of 15%. In effect, you’ll be paying taxes on 85% of your gains, not 100%. Plus, those taxes won’t be due until 2027.

If left invested for 10 years, any new gains generated by the investment in the QOZ are 100% tax-free.

What if I’ve already filed my taxes?

If you’ve already filed, you could do an amended return. Form 1040X.

Bi-Partisan Support

The QOZ section of the Tax Cut & Jobs Act was authored by Senator Cory Booker (D-NJ) and Senator Tim Scott (R-SC) as a way to free up capital and encourage investment in specific neglected areas in the US. These opportunity zones were designated by the Governor of each state in 2018. This was the least contentious part of the bill overall. Dems like it because it provides a revenue stream. Republicans like it because it reduces taxes.

Who Is Eligible?

Individuals, C corporations, partnerships, S corporations, and trusts and estates are eligible to invest in the opportunity zone entity.

DIY?

There are over 8,000 opportunity zones in the US. Many landowners woke up one morning and discovered that their land was in an OZ. Also, opportunity zone funds are fairly easy to set up so there are funds popping up all over. There is a bit of wild west feel out there. Not every zone or fund is going to make a good investment. I wouldn’t be comfortable at all with a do-it-yourself fund. So, how do you know which one to pick?

Proceed with caution. We only work with established, experienced sponsors with a strong record of development and management.

In short, there is still time but you have to thoroughly vet the sponsor and the fund. We can help.

Have questions? Feel free to call or email. You can schedule a call by using the appointment box on this page.

[1] Internal Revenue Code Section 1400Z