A Qualified Opportunity Fund is any qualified investment vehicle organized as a corporation or partnership for the purpose of investing in qualified Opportunity Zone (OZ) property (other than another QOF). The Opportunity Zone tax incentive is part of the TCJA of 2017 and is still undergoing final revisions. See my previous blog on OZ tax incentives.
How is the Opportunity Zone tax incentive unique?
One of the most significant stand-alone qualities of this powerful, ‘community-renewal’ tax endeavor is its lack of governmental oversight. Also brought up have been observations relative to its generosity to long-term investors and the lack of well-defined social benefits of the initiative. The very fact that these issues need to be mentioned addresses the fact that you need someone on your side who understands what’s going on.
These unique issues prompt me to strongly urge investors and syndicators to contact me. Participation in this new tax incentive is not an FIY project. Strategies that are put into motion with knowledge and experience produce fearless, flexible, quick-moving options that define your future success. That’s tax gaming; and this Tax Cuts and Jobs Act preferential tax incentive requires skillful tax gaming.
I know tax gaming. Let’s get your tax strategy game ready.
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Drilldown on a Qualified Opportunity Fund
A Qualified Opportunity Fund is a vehicle that funds projects in Qualified Opportunity Zones and is designed to spur economic development by providing tax benefits to investors. First, investors can defer tax on any prior gains invested in a QOF until the earlier of the date on which the investment in a QOF is sold or exchanged, or December 31, 2026. If the QOF investment is held for longer than 5 years, there is a 10% exclusion of the deferred gain. If held for more than 7 years, the 10% becomes 15%. Second, if the investor holds the investment in the Opportunity Fund for at least ten years, the investor is eligible for an increase in basis of the QOF investment equal to its fair market value on the date that the QOF investment is sold or exchanged.
What can happen with a Qualified Opportunity Fund
Investors who establish a QOF with a 2018 capital gain get four breaks:
- deferral of tax on their 2018 gain until 2026;
- a 15% reduction on those gains when they’re taxed in 2026;
- a tax-free growth of their opportunity investment as long as they hold it for at least ten years; and
- the possibility of an overall 20.5 year advantage
A QOF must hold at least 90 percent of its assets in qualified opportunity zone property. Compliance with the 90 Percent Asset Test is determined by the average of the percentage of the qualified opportunity zone property held in the QOF as measured on the last day of the first 6-month period of the taxable year of the QOF and on the last day of the taxable year of the QOF.
A clear advantage to investing in a QOF is that contributions can be any type of asset or investment, agriculture included; however a 10-to-20.5-year investment can present many risks. Again, not a project for a DIYer.
Want to turn risks into options?
I can help you.
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Tax gaming is tax strategy on steriods.
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Becoming a QOF investor through self-certification
Currently, an eligible taxpayer can self-certify to become a QOF investment fund, which is seen as a means to encourage investment in low-income community tracts of land. In June of 2018, the U.S. Treasury Secretary certified the final population census tracts nominated by the governor of every U.S. state (selected by CEOs of each state) and territory and the mayor of Washington, D.C.
Although self-certification may seen self-serving, be careful. It’s not as simple as it appears on surface. To become a Qualified Opportunity Fund, as it stands today, an eligible corporation or partnership, or an LLC that chooses to be treated as either a partnership or corporation for federal tax purposes, self-certifies by filing IRS Form 8996 with its federal income tax return. Be aware, the form is in early-release draft at this time–open for suggestions thru January 10,2019, with finalization currently scheduled for March 10, 2019.
Corporate taxes due Friday, March 15, 2019
Remember, this tax became law, although without a complete set of rules, in December of 2017. So, here’s a twist: Let’s say mid-December, 2017, you sold some stock, but during the required 180-day period, you invested the amount of gain in a Qualified Opportunity Fund. You’re gutsy, and need me! Now you figure you need a long-term strategy. You’re right, you need me! We’ll file an amended 2017 return, attach IRS Form 8949 and we’ve positioned you to be in the game for the long haul. You are aware (aren’t you?) that done correctly, you’re looking at a possible 20.5 years of perferential tax treatment (and the same number of years of multiple mid-year tax reporting and filing requirements).
Self-certification is not a one-time-one-size-fits-all proposition
This isn’t a DIY project, pull-yourself-up-by-the-boot straps, or just-wing-it investment. This is serious money, serious tax advantages, moral social consciousness, advanced strategy (tax gaming} and good, honest business.
If you want, and are financially able to do this, let’s do it right. Together. You’ll be part of a group of well-heeled investors receiving preferential tax treatment, under close scrutiny, with as yet undecided tax laws, and helping your economically-distressed community by investing in selected tracts with high need and proven growth potential.
Let’s do this together
I know and understand the fine art of tax gaming, and that tax avoidance is when my client stands firmly, toes to the line, on the regulations that the IRS has established.
You can have the same opportunities as my clients have to control your own financial future. I can become your CPA tax specialist and financial business and life goals adviser, and you can have the control you need and demand.
I earned my reputation as The Radical CPA
List of Opportunity Zones (Arkansas begins on pg 18)
Investing in Qualified Opportunity Funds (Proposed Rules)
Tax Gaming is Highly Complicated but worth it!