CAN OZ WORK FOR YOU? Accounting for Qualified Opportunity Zone Funds By Keith Hamasaki, CPA Director - Assurance & Advisory
I
f you’ve ever wanted to help revitalize an economically distressed community but couldn’t justify it economically to generate enough capital from investors, then the new Opportunity Zone Program may be the right answer for you.
What is the Opportunity Zone Program? As part of the 2017 Tax Cuts and Jobs Act (TCJA), the Opportunity Zone Program was established, which allowed state governors to designate certain areas as Opportunity Zones. A map of the California designated Qualified Opportunity Zones1 is available online.2 Participants can potentially pay little to no tax on capital gains resulting from the sale of property, so long as they 1) invest the proceeds within 180 days in a Qualified Opportunity Fund 2) have the fund hold at least 90% of their assets in Qualified Opportunity Zone Property 3) have the Fund hold the assets for at least 5 years.
Simply put, an investment in a Qualified Opportunity Fund has the potential to have NO capital gains taxes on any appreciation of the Fund if certain requirements are met.3 Investors who meet the above qualifications in investing in their realized capital gains into Qualified Opportunity Funds must do so for at least 5 years to receive the minimum benefit, but should consider investing for at least 10 years to secure the maximum benefit. There is no limit to the amount of realized capital gains that can be invested in the Qualified Opportunity Fund. The only requirements are that the Qualified Opportunity Fund must have at least 90% of its assets within an Opportunity Zone and must meet the Substantial Improvement Test. The 90% is determined based on, “the last day of the first 6-month period of the taxable year of the fund, and on the last day of the taxable year of the fund.” 6
KROST QUARTERLY VOL. 2 ISSUE 1 - THE REAL ESTATE ISSUE