Opportunity Zone Magazine Opportunity Zone Magazine Volume 1, Issue 1 | Page 58

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OPPORTUNITY ZONE MAGAZINE | VOLUME 1
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ISSUE 1
A Qualified Opportunity Zone (QOZ) is an economically
distressed community where investments, under certain
conditions, may be eligible for preferential tax treatment. The
distressed area may qualify as QOZ if the state’s Governor has
nominated them for that designation and that nomination
has been certified by the Secretary of the U.S. Treasury via
their delegation to the Internal Revenue Service. The rules
for a QOZ reads, if a taxpayer realizes an eligible gain, he/
she may reinvests the gain within 180 days of disposition of
the original asset (point of sale, in relation to real estate, this
would be close of escrow of a tax payer’s relinquished property)
into a Qualified Opportunity Fund (QOF) and defers the
gain. The QOF conducts business, either directly by holding
QOZ business property (QOZBP) or indirectly by holding
QOZ stock or a QOZ partnership interest.
within the real estate must be separate transactions and
only the real estate may receive the benefit of the 1031
exchange. Clients who have operated their business for years
sometimes struggle with the concept that the building they
own (normally through a LLC or a corporation) is actually
separate from the business that not only operates from
within the building but also owns the building. Clients are
often left disappointed by the fact that a 1031 exchange
will only provide preferential tax treatment for their capital
gains for their real estate and not for their business. This is
especially difficult for clients when the value of the business
outweighs the value of the real estate.
While 1031 exchanges have been limited to specifically focus
on real property, this new rule not only allows taxpayers to
defer that capital gain with the option to utilize an exemption,
but the rule broadens the benefit beyond real property. The
rule now includes capitals gains incurred from the sale of
stock and business interest. Now, with QOZs, taxpayers are provided an option to receive
beneficial tax treatment for the value of their real estate
and business. People who own real estate and operate their
companies within the real estate may no longer have to
segregate the transaction when trying to take strategic tax
maneuvers to protect their profits. With the introduction of
QOZ’s, investors can now defer the gains accrued from both
the real estate of the business and the business interest with
an option to gain further exemptions on those gains.
Many are looking to sell their real estate in conjunctions
with their business. The most common example is the sale of
a gas station or a franchise like Seven Eleven. However, the
sale of the real estate and the sale of the business operating This benefit is also a great incentive to investors who
continually invest in the economy. One principal that governs
a 1031 exchange is an incentive to sell. When people learn the
amount of taxes they stand to pay due to the disposition of an
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