Qualified Opportunity Zones – Tax Preparer Springfield MO

A provision within the Tax Cuts and Jobs Act created “Qualified Opportunity Zones” (QOZ) in certain designated low-income communities.  To spur investment and job creation, private investors in Qualified Opportunity Funds (QOFs) are allowed certain tax advantages for investing in these communities.

A QOF is, generally, an investment vehicle organized as a corporation or a partnership for the purpose of investing in qualified opportunity zone property (other than another QOF), that holds at least 90% of its assets in qualified opportunity zone property.  Qualified opportunity zone property includes any qualified opportunity zone stock, any qualified opportunity zone partnership interest, and any qualified opportunity zone business property.

Rewards for investment of capital gains in QOFs include:

  • Deferral of original gain recognition for amounts invested in an Opportunity Fund until the earlier of December 31, 2026 or when the Opportunity Fund investment is sold. The gain that is ultimately recognized is the lesser of the original deferred gain or fair market value of the investment in the Qualified Opportunity Fund less the taxpayer’s basis in that interest (initially deemed $0).
  • Exclusion 10 percent of the original deferred gain if a taxpayer holds its QOF investment at least five years. If a taxpayer holds its QOF investment for at least seven years, the taxpayer may exclude an additional five percent of the original deferred gain for a total exclusion of 15 percent of the original deferred gain. The original deferred gain – less the amount excluded due to the five and seven year holding periods – is recognized on the earlier of sale or exchange of the investment, or December 31, 2026.
  • Exclusion of capital gains for Opportunity Fund investments held for at least 10 years. 

If corporations and business partnerships are organized as QOFs, the IRS has issued new Form 8996 that is to be completed annually with the appropriate income tax return. They use Part I of Form 8996 to certify that it is organized to invest in qualified opportunity zone property. Part II is used to annually report details of the 90% investment standard. Part III is used to determine if it fails to meet the investment standard; and Part IV is completed to determine the amount of penalty for any such failure.

As additional guidance is available in 2019, it is expected that third-party Qualified Opportunity Funds will form seeking investor capital. Other taxpayers with specific qualifying projects in mind may seek to create their own project-specific Qualified Opportunity Funds. Schultz, Wood & Rapp P.C. encourages investors to seek advice from their tax preparer in Springfield Missouri.