BACKGROUND
The 2017 Tax Act created a “Qualified Opportunity Fund” thatcan invest in a “Qualified Opportunity Zone.”
A QOF investment allows someone with a capital gain to deferthat gain until the investment is sold or December 31, 2026. On12-31-2026 deferred gains will be triggered. Basis adjustments tothe deferred gain are available if the investment has been held for5 years, and again at 7 years. If held for 10 years there is no taxon the appreciation in the investment (the original deferred gain,which occurred prior to the investment, is recognized no later than12-31-2026).
MANY clients have heard about the QOF, although probably invery limited terms. Many of these people are intrigued with thepossibility of a QOF.
The QOF offers some of the same benefits as a section 1031exchange. In some ways a QOF appears better, in others it may beworse.
YOUR ASSIGNMENT
In APPROXIMATELY 1500 words (this is neither a limit nor arequirement), write a memo that will go out to clients thatexplains the important elements of a QOF investment. YOU decidewhat is important to include. Write it for a layperson. There isstatutory law (Internal Revenue Code) and a first set of proposedregulations. Keep in mind that someone considering an investment inan opportunity zone has other options – they could sell theircapital asset, pay the tax, and invest anywhere. They might be ableto do a like-kind exchange if they sell real property. If you couldaddress pros and cons of opportunity zone investments that mighthelp. But, again, keep in mind that this is a general presentationof the issues to your various clients. You do not have a specificfact pattern to deal with.
