Reference no: EM132256361

BACKGROUND

The 2017 Tax Act created a “Qualified Opportunity Fund” that can invest in a “Qualified Opportunity Zone.”

A QOF investment allows someone with a capital gain to defer that gain until the investment is sold or December 31, 2026. On 12-31-2026 deferred gains will be triggered. Basis adjustments to the deferred gain are available if the investment has been held for 5 years, and again at 7 years. If held for 10 years there is no tax on the appreciation in the investment (the original deferred gain, which occurred prior to the investment, is recognized no later than 12-31-2026).

MANY clients have heard about the QOF, although probably in very limited terms. Many of these people are intrigued with the possibility of a QOF.

The QOF offers some of the same benefits as a section 1031 exchange. In some ways a QOF appears better, in others it may be worse.

YOUR ASSIGNMENT

In APPROXIMATELY 1500 words (this is neither a limit nor a requirement), write a memo that will go out to clients that explains the important elements of a QOF investment. YOU decide what is important to include. Write it for a layperson. There is statutory law (Internal Revenue Code) and a first set of proposed regulations. Keep in mind that someone considering an investment in an opportunity zone has other options – they could sell their capital asset, pay the tax, and invest anywhere. They might be able to do a like-kind exchange if they sell real property. If you could address pros and cons of opportunity zone investments that might help. But, again, keep in mind that this is a general presentation of the issues to your various clients. You do not have a specific fact pattern to deal with.