Real Estate Journal — Financial Digest — Tax Issues & Accounting — July 13 - 26, 2018— 9A
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By Jeffrey P. Roude, CPA and Michael Benguigui, CPA Qualified Opportunity Funds encourage long- term investments in economically distressed areas
T
he Tax Cuts and Jobs Act (“TCJA”) enacted a new opportunity to in-
deferred gain is increased by an additional 5% of the original gain. Hence there is a potential
in investments made with the QO Fund. Please note that this permanent exclusion would only be beneficial for any gain appreciation after December 31, 2026 since the original gain which was invested in the QO Fund will need to be recognized. In a real estate deferral struc- tured as a like-kind exchange, the investor would need to in- vest all of the proceeds related to the sale of the disposed prop- erty, and the gain and return of capital proceeds. This is not the case with QO Funds since the investor would only need to invest gain from the previous
transaction.
designations include (but are not limited to) tracts of land in the Atlantic, Bergen, Camden, Essex, Hudson, Middlesex, Monmouth, Morris, Ocean, Passaic and Union Counties. Please click here to reference the complete list. The New York approved designations include (but are not limited to) tracts of land in the Bronx, Kings, New York (Manhattan), Nassau, Queens, Richmond (Staten Island), Rockland, Suffolk and Westchester Counties. Please click here to reference the continued on page 18A
Qualified Opportunity Zone Designations: State governors were re- quired to nominate Qualified Opportunity Zones within their state to the U.S. Department of the Treasury by March 21, 2018 to be considered for ap- proval. As of May 21, 2018, the Treasury announced that 20 states and two U.S. territories have designated QOZs includ- ing New York and New Jersey. This designation is retained for the next 10 years until it would be required to be renewed. The New Jersey approved
centivize real estate invest- ment and de- velopment in l ow- i nc ome communities a c r o s s t h e country. This new i nc en - tive creates
of an overall basis step up of 15% on the deferred gain. 3. Elimina- t i on o f the gain on cer- tain proper- ties held by a QO Fund.
Jeffrey P. Roude Michael Benguigui
Qualified Opportunity Zones (“QOZs”) in which investors who previously recognized a taxable gain can defer or elimi- nate it by investing the gain proceeds into a Qualified Oppor- tunity Fund (“QO Fund”). QOZs are designated low-income housing communities in the United States (or Puerto Rico) in which a population census tract is above the poverty rate, or median family income does not exceed a percentage of the statewide median family income. This program is designed to be a complement to other Fed- eral incentive programs such as Low-Income Housing Tax Cred- its or New Market Tax Credits. The Tax Incentive to Invest in a QO Fund 1. Tax deferral of previous dis- position gain. The investor interested in ben- efitting from this newly created programmust invest their gain from a previous transaction in a QO Fund, which can be structured as a corporate or partnership entity. Please note that this can be any gain from the sale of real or non-real property, even assets which generate ordinary income. The gain is deferred by investing the amount of the gain into a QO Fund, hence the return of the capital portion does not need to be invested in order to benefit from the deferral. The investment must be made within 180 days after the sale of the property which triggered the gain. The gain is deferred to the earlier of (i) the date on which a QO Fund is disposed or (ii) December 31, 2026. 2. Basis increase of a QO Fund. An investor’s initial tax basis of a QO Fund is initially zero since the cash being invested is from a transaction in which the gain is being deferred. However, if the investor holds its interest in a QO Fund for at least five years, the tax basis is increased by 10% of the deferred gain; if the interest is held for at least seven years, the basis of the
Investors that hold the Oppor- tunity Fund investment for at least 10 years can receive the added benefit of paying no tax on any realized appreciation
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