2B — May 24 - June 13, 2019 — Owners, Developers & Managers — M id A tlantic
Real Estate Journal
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O wners , D evelopers & M anagers By Jeremias Ramos, CPA, Withum Top 5 takeaways: 2 nd round of QOZ Proposed Regulations T he Internal Revenue Service recently issued more proposed regula-
Owners, Developers &Managers Taxpayers who defer a capi- tal gain by reinvesting in a continued on page 16B lating an investor’s basis in a QOF. Specifically, real estate investors were afraid of debt financed distributions being classified as an inclusion event, which would prematurely trig- ger a taxable gain.
section, however, is the per- manent exclusion of the post- acquisition gain from the sale of the interest in the QOF if it is held for more than 10 years. Although the first round of regulations was comprehensive in its explanation on the tax incentives, it left many unan- swered questions for real estate investors, specifically: • Will debt financed distri- butions trigger an inclusion of capital gains? • Can a QOF buy, sell and ex- change QOZ property without impacting an investor’s 10-year holding period? • How will the sale of prop- erty within a QOZ be treated within the 10-year holding period and after the 10-year holding period? • Can land qualify as QOZ property? • Do abandoned buildings or unfinished development projects count as original-use property and therefore not need to be substantially improved? The IRS Will Allow Taxpayers to Count Debt Basis to Avoid Taxable Debt
tions (REG- 1 2 0 1 8 6 - 18) on Sec. 1 4 0 0 Z - 2 , which outline the new tax incentives for investing in economically d i s t r e s s e d communities.
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For a quick overview, the tax incentives within Sec. 1400Z-2 allow taxpayers to defer a re- alized capital gain for as long as seven years if they subse- quently invest the capital gain into a Qualified Opportunity Fund (QOF) within 180 days. If the taxpayers hold that qualified interest in said fund for five years, they will be al- lowed to take a 10% discount off of the original capital gain. If the taxpayers hold the quali- fied interest for an additional two years, they will be given an additional 5% discount on their original capital gain. Fast for- ward to December 31, 2026 and the taxpayers will only have to pay tax on 85% of their original capital gain that was realized seven years earlier. The holy grail of this code
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