Opportunity Zone Magazine Opportunity Zone Magazine Volume 1, Issue 1

68 OPPORTUNITY ZONE MAGAZINE | VOLUME 1 • ISSUE 1 One of the least talked about aspects of the program is how OZ program participants will be impacted at the state level. Since only 31 states have opted to conform to the federal rules, there are a myriad of issues which need to be evaluated before opting into the OZ program and making specific investments from a Qualified Opportunity Fund (QOF). 1 How should investors evaluate the program’s from both a federal and state perspective? a portion of that gain after holding the QOF at least 5 years, and then after a 10-year hold, eliminating any post- reinvestment federal (and possibly state) gain which accrues after the original reinvestment. To participate, taxpayers must roll all or a portion of their short-term or long-term capital gain into a QOF. The QOF must then timely, in a 180-day window, invest the gain into undeveloped or developed real estate, a new or existing QOZ-based operating business, or into other qualified QOZ property located in one of the 8,700 designated census tracts. 2 THE FEDERAL OPPORTUNITY ZONE PROGRAM The Tax Cut and Jobs Act of 2017 created the QOZ effective in January 1, 2018 and operative for up to the next four decades. The program offers powerful and flexible tax savings and a diversification tool for taxpayers generating large capital gains. The architects of the program are a trio including Silicon Valley tech guru Sean Parker, Senator Cory Booker (D- NY) and Senator Tim Scott (R-SC). Parker recognized that there is a massive concentration of trapped tax gains in IPO stocks, real estate and other assets. The Senators liked the program’s focus on attracting investment into under- served neighborhoods. The QOZ program offers eligible taxpayers the ability to defer their original capital gain for up to eight years, eliminate QOZ PROGRAM Phase I: 180-Day Gain Re-Investment Period B egi n ni ng Ja n. 1, 2018 t h roug h D ec. 31, 2026, individuals, corporations, REITs, and pass-thru entities can invest gains realized from their appreciated capital assets and elect to reinvest all or a portion of the resulting capital gain into a QOF. The initial federal tax impact of participating in a QOF includes deferring qualified gains until Dec. 31, 2026. 3 The taxpayer has up to 180 days (including the date of sale – this is different than six months) to reinvest all or a portion of the capital gain portion of their gain transaction. The proposed regulations provides some useful guidance on re-investment timing. Gains flowing through entities such as partnerships, S Corps, Trusts and REITS are deemed to occur on the last day of the year. 4 The QOF then has up to six months to move the funds into an operating entity or other Qualified Opportunity Zone Property (OZ Property). To the extent the investment involves the improvement of tangible property, the taxpayers has up to 31 months to invest adequate funds into the OZ Propert. OPPORTUNITYZONEEXPO.COM 5

Opportunity Zone Magazine Opportunity Zone Magazine Volume 1, Issue 1 | Page 70