As promised, the Treasury Department issued the final regulations on code section 1400Z-2 (Qualified Opportunity Zones) before the end of the year – just in time for investors to get final answers before the December 31st deadline.
For those who are unfamiliar with the incentives of the law here’s a quick summary:
- Deferral of capital gains until December 2026 if such capital gains are reinvested in a Qualified Opportunity Fund (QOF)
- 10% exclusion on original defferal if the QOZ investment is held for 5 years.
- 5% additional exclusion on defferal if the investment is held for 7 years.
- Complete exclusion of capital gains on the sale of the QOF investment after a holding period of more than 10 years.
The reason why the December 2018 deadline is so important is because the tax bill on the original defferal of capital gain comes due in December 2026. If you’re counting right, that means if you invest by the end of this year you can hold the investment for 7 years and benefit from the 10% and 5% exclusions. If you don’t invest by the end of the year then the 5% exclusion becomes unavailable.
However, with only a few weeks left to the end of the year it’s going to be almost impossible for investors to make any informed decisions based on the final set of regulations.
That’s why I’m devoting my Holidays to giving you the gift of explaining the final regs in a digestible way. Tune back for updates and news on what’s in the final regs.