Are you expecting a capital gain in 2021 (sale of a business or a stock that did well?), but are not eager to pay capital gains tax? Or perhaps you had a capital gain within the last few months? There might be a solution for you.
If certain conditions are met, investing your capital gain in a Qualified Opportunity Zone (QOZ) by December 31st 2021 can DEFER your federal (and at times, state) capital gains tax until 2026.
You can also LOWER your federal (at times state) capital gains tax by 10% if you keep your gain in the QOZ for a period of 5 years.
You can also ELIMINATE any federal (at times state) capital gains taxes on the APPRECIATION of the QOZ if you leave your funds untouched for 10 years.
What is a Qualified Opportunity Zone (QOZ)?
Per IRS regulations: “A QOZ is an economically distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Localities qualify as QOZs if they have been nominated for that designation by a state, the District of Columbia, or a U.S. territory and that nomination has been certified by the Secretary of the U.S. Treasury via his delegation of authority to the Internal Revenue Service (IRS).”
Will a Qualified Opportunity Zone (QOZ) eliminate my capital gains tax?
No. If certain conditions are met, a QOZ can DEFER your short or long-term federal capital gains taxes until 2026; the strategy can INCREASE your basis by 10%; and can ELIMINATE any federal capital gains taxes on the APPRECIATION of the QOZ if you sell between 2031-2047.
When do I have to invest?
180 days from the date the capital gain is RECOGNIZED for tax purposes – with a hard stop on December 31st, 2021, which is when the strategy expires (though we’re hoping this deadline will get extended once more).
What capital can I invest?
Let’s say you sell a property for $500,000, and 50% ($250,000) of that amount comprises a capital gain (short or long-term). Only your capital gain ($250,000) is eligible for preferential tax treatment – not the entire sales amount.
Why should I invest?
Apart from the obvious tax benefits, you would be helping invigorate an economically distressed community.
Schedule a consultation to find out more!