2017 Tax Cuts and Jobs Act created Qualified Opportunity Zones (QOZ) to provide tax benefits to investors who invest eligible capital gains into designated economical distressed communities. To date, over 8,700 low-income communities have been designated as QOZs. A list can be found at https://www.cdfifund.gov/pages/opportunity-zones.aspx. The concept of the program is to award favorable tax treatments to taxpayers who invest capital gains from investments into a designated Qualified Opportunity Fund (QOF).
QOF is an investment vehicle, which is organized as a corporation or a partnership, designed to invest and hold at least 90 percent of its assets in qualified opportunity zone property, determined by the average of the percentage of qualified opportunity zone property held in the fund as a measure (i) on the last day of the first 6-month period of the taxable year of the fund, and (ii) on the last day of the taxable year of the fund.
There are three possible tax benefits of investing into Qualified Opportunity Zones.
You may elect to make the election on the tax return on which the tax on the gain would be due if you do not defer it. For example, if you sold stocks on December 1, 2019, and invested into a QOF on March 15, 2020, the election would be on the 2019 tax return. If you accidentally filed your tax return without deferring the tax, don’t worry because you can still defer the gain by filing an amended tax return using 1040-X.
Absolutely, but the requirements for a Qualified Opportunity Zone Businesses are different. The businesses must meet one of the three “50 percent of gross income tests” which are
An eligible corporation or partnership needs to file form 8996, Qualified Opportunity Fund, with its federal income tax return.
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