Hello Katz - Here Are Your Articles for Thursday, December 13, 2018
Is this email not displaying correctly?
View it in your browser .
Website Industries Resources Services About Us Contact Us
Share Save

New Capital Gain Deferral and Exclusion Provision under the 2017 Tax Law Changes


The Tax Cuts and Jobs Act added new provisions in many areas of taxes.  One of these, Qualified Opportunity Zone (or QOZ) investments, offers an “escape hatch” to current recognition of capital gains (from any source).  The investment will normally be made through a Qualified Opportunity Fund (QOF).


The “escape hatch” has three features to it:

  1. The original capital gain can be deferred until the earlier of the date of sale of the QOZ investment or December 31, 2026;
  2. The possibility of an exclusion of either 10% or 15% of the originally deferred gain on recognition; and
  3. The ability to elect to exclude all gains from the QOZ investment, over and above the originally deferred gain (or from investing non-gain funds in a QOZ investment), provided the QOZ investment has been held for at least 10 years by the time the gain from the QOZ investment is recognized.


To achieve a 10% exclusion of the original deferred gain, the QOZ investment must have been held for 5 years at the time the deferred gain is recognized. The 15% exclusion requires holding the QOZ investment for another 2 years to the date of disposition.


Deferral of the capital gain is at the election of the Taxpayer, provided an eligible QOZ investment is purchased with part (or all) of the capital gain funds. For a QOZ investment to qualify for the election, it must be purchased within 180 days of the date the gain is generated (usually the date of sale, although some tax situations generate gains without an actual sale, such as for partnership distributions or debt shifts). If real property is purchased in a QOZ, improvements at least equal to the cost of the real property, excluding land and personal property, must be made to the property. If stock in a corporation located in a QOZ is purchased, the corporation must use the funds to acquire equipment or making improvements at its business location in the QOZ.


Gain from disposition of a QOZ investment incorporating gain deferral may not be “rolled over” into another QOZ deferral.


Taxes on the originally deferred gain, less any exclusion for which the holding period has been met, will be due, at the latest, with the filing of the Taxpayer’s tax return filed for 2026, whether or not the QOZ investment has been sold or the liquidity of the QOZ investment at the time. For this reason, planning for liquidity to cover the deferred tax bill will be extremely important.


In Summary:

  • Step 1 = Taxpayer recognizes capital gain
  • Step 2 = Within 180 Days taxpayer reinvests some or all of gain in QOF
  • Step 3 = The QOF must invest more than 90% of its assets in QOZ property(s) located within the Zone either by:
    • Investing in Sub that operates as QOZ business or
    • Operating a QOZ business directly by holding QOZ business property


If a QOZ business operated through Sub, Sub must invest more than 70% of its assets in QOZ business property.


If a QOZ business is operated directly by QOF, more than 90% of the assets of the QOF must be QOZ business property.

  • Tax Benefit 1 = Deferral of original gain
  • Tax Benefit 2 = Exclusion of 10% of original gain after 5 years
  • Tax Benefit 3 = Exclusion of another 5% of original gain after 7 years
  • Tax Benefit 4 = Exclusion of 100% of gain realized on disposition of the QOF after 10 years


There are more details to this (when isn’t there, in taxes) than can be detailed in an article of this length, but if you’re interested in further discussion of this opportunity, please call our office.


Mark H. Misselbeck, C.P.A., M.S.T. is a Tax Principal at Katz, Nannis + Solomon, P.C. If you have any questions or would like to speak with one of our tax professionals, please contact our office at 781-453-8700.

Share Save

Your Comments

Katz Nannis + Solomon PC
Katz Nannis + Solomon PC
800 South Street Suite 250
Waltham, MA 02453
Connect with me on LinkedIn
Saved Articles
Comments and Feedback
Refer A Friend
Your Privacy
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
Powered by
Copyright © IndustryNewsletters All rights reserved.

This email was sent to: bwright@knscpa.com

Mailing address: 800 South Street, Suite 250, Waltham, MA 02453