OPPORTUNITY ZONE NEW TAX INCENTIVES
SANTA ANA OPPORTUNITY ZONES The federal tax bill passed at the end of December 2017 allows the Governor to designate certain census tracts as Opportunity Zones. Downtown Santa Ana is included in one of these zones. Investments made by individuals through special funds in these zones would be allowed to defer or eliminate federal taxes on capital gains.
TAX DEFERRAL Tax deferral on capital gain invested in O-Fund to the earlier of the sale from the O-Fund or 12/31/26
10% TAX REDUCTION
Opportunity Zones retain their designation for 10 years. Investors may defer tax on almost any capital gain up to Dec. 31, 2026 by making an appropriate investment in a zone, making an election after December 21, 2017, and meeting other requirements.
Hold the fund for 5+ years.
O-FUND REQUIREMENTS
15% TAX REDUCTION
Triggering event is the realization of gain (“capital” gain in conference report and title of code section – Special Rules for Capital gains Invested in Opportunity Zones, but the code itself refers to gains “of any property”)
Hold the fund for 7+ years.
Capital gain must be from and unrelated party
TAX EXEMPTION Hold the fund for 10+ years and appreciation of O-Fund investment (not the original gain, but post-acquisition gain) is exempt from taxes.
TAX BASIS Tax basis in investment is $0 2018 Darvishian Group. Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your needs.
EXEMPT
Investment in Qualified Opportunity Zone Fund (O-Fund) must occur within 180 days of liquidation/ disposition/sale to third party Mixed funds permitted, but only capital gain portion reaps the tax benefit O-Funds are self-certified and can be created by the taxpayer or you can invest in a n established O-Fund – all investment must be through 0-Funds At least 90% of the assets must be invested in Opportunity Zone property (ave. at 6 months and year-end).
ABOUT US SALIENT FACTS Taxpayers have 180 days from the date when the capital gain is triggered to invest their portion of the gain in the O-Fund. The term “qualified opportunity fund” is any investment vehicle which is organized as a corporation or a partnership for the purpose of investing in qualified opportunity zone property (other than another qualified opportunity fund) that holds 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 measured:. (A) on the last day of the first 6-month period of the taxable year of the fund, and (B) on the last day of the taxable year of the fund.
EXAMPLE CIRCUMSTANCES
On August 15, 2018, taxpayer sells stock with a basis of $1,000,000 to an unrelated third party for $2,000,000 resulting in a capital gain of $1,000,000. • Instead of paying the $238,000 (23.8% tax rate) in federal capital gains tax, the taxpayer invests$1,000,000 in an O-Fund • Taxpayer sells his investment in the O-Fund after August 15, 2028 for $2,000,000
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RESULTS
• Taxpayer defers paying tax until 2026 • Tax due is $202,300 (tax basis of $150,000 (15%)) – held more than 7 years • No additional tax due on the $1,000,000 in capital gains on the O-Zone investment – held more than 10 years
PASHA DARVISHIAN p: 949.396.1081 pasha@darvishiangroup.com
JON HAUSO p: 949.396.1028 jon@darvishiangroup.com
600 Anton Blvd 11th Floor Costa Mesa, CA 92626
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