The team is back in the Branded Social, LLC studio with another podcast episode. Today, Mitzi talks about getting tax-free gains using oportunity zones. You can follow the link below to see if you are in an opportunty zone. https://opportunityzones.hud.gov/resources/map
Here are some notes from today's episode. If you have any quesitons, don't hesitate to reach out to us!
Tax Free Gains Using O-Zones
● Created through the Tax Cuts & Jobs Act of 2017;
○ Subchapter Z of the US Tax Code—also known as the opportunity zone provisions.
● Offer incentives, in the form of capital gains tax abatement, for those who invest eligible capital into Qualified Opportunity Zone assets via a Qualified Opportunity Fund;
○ A QOF files either a partnership or corporate federal income tax return and is organized for the purpose of investing in QOZ property.
○ A QOF elects to self-certify as a Qualified Opportunity Fund by annually filing Form 8996 with its federal income tax return.
○ Any tax-paying individual or entity can create a Qualified Opportunity Fund through a self-certification process. A form is submitted with the taxpayer's federal income tax return for the taxable year.
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● Senate bill 4065/House bill 7467 is a bipartisan, bicameral bill that extends the opportunity zones temporary deferral period for qualifying capital gain through 2028 and establishes a State and Community Dynamism Fund to support public and private investment in qualified opportunity zones. It is expected to pass, in some form, late this year.
○ The Act would create a $1 billion State and Community Dynamism Fund, providing states, territories, and the District of Columbia with assistance in an effort to promote projects and businesses in lower-income communities. This would include technical assistance, capacity building, and financing support.
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Gain Deferral
● Investors can defer tax on any qualified 1231 gains and capital gains until no later than December 31, 2026, so long as the gain is reinvested in a Qualified Opportunity Fund within 180 days beginning on the date the gain was realized.
● Includes qualified 1231 gains (Form 4797, Part I gains, such as sale of equipment with a remaining basis) and capital gains (such as stocks, etc.) recognized before 01/01/27.
● Ordinary gains are not eligible for deferral (Form 4797 Part II gains, such as depreciation recapture).
● An investor must recognize any remaining deferred gain on the earlier of an inclusion event or December 31, 2026. The amount of deferred gain included in income depends on (i) the fair market value of your qualifying investment in the QOF on the date of the inclusion event and (ii) adjustments to the tax basis of that qualifying investment;
○ An inclusion event, in general, is an event that reduces or terminates your qualifying investment in a QOF.
○ If the gain is from a passive activity (code b on Form 8997), it can be offset by passive losses rolled forward, such as those generated with a cost segregation analysis.
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● Excludes related party transactions.
● Election to defer the gain, in whole or in part, is made on IRS Form 8949.
● Eligible gains from installment sales are eligible for deferral to the extent they are timely invested in a QOF. The 180-day period during which to invest in a QOF begins on the day the installment payment is received, even if the installment sale giving rise to the gain took place prior to December 2017.
● Deferral of gain may be claimed on amended returns.
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