As Key OZ Deadline Approaches, Will Q4 Set A QOF Record?

OpportunityDb founder Jimmy Atkinson has called the opportunity zone program “the single greatest tax incentive in the history of the United States.”

This statement is due partially to the fact that investment in a Qualified Opportunity Fund yields more than just a single tax benefit; taxpayers who roll over their capital gains into a Qualified Opportunity Fund can enjoy three tax benefits — deferral, reduction, and exclusion.

  1. Deferral of capital gain recognition from the original investment until December 31, 2026.
  2. Reduction of capital gain recognition from the original investment. The amount of capital gain recognized from the original investment is reduced by 10 percent after achieving a 5-year holding period, so long as the 5-year holding period is achieved by December 31, 2026.
  3. Exclusion of capital gain recognition on Qualified Opportunity Zone Property held for at least 10 years, so long as the gain from the Opportunity Zone investment is recognized by December 31, 2047.

The second benefit, a 10 percent reduction of capital gain recognition from the original investment, will be expiring on December 31, 2021, since it requires a 5-year holding period which must be achieved by December 31, 2026.

Look at the big picture: the OZ space hardly needs a boost to spur inflows and deal activity for the remainder of 2021. A booming stock market and general asset inflation has left many investors sitting on large capital gains. And a lot of these investors want to realize some of their gains without triggering a taxable event, which makes Qualified Opportunity Funds an attractive option.

So the urgency created by the expiration of one of the OZ benefits will simply pour gasoline on this roaring fire, right up to the end of 2021.

Note: if you’re an investor who is interested in making a QOF investment later this year, check out OZ Pitch Day, produced by our sister site, OpportunityDb. The next OZ Pitch Day event will be held online on November 3-4, 2021.

Andy Hagans
Andy Hagans

Andy Hagans is co-founder and CEO at AltsDb, and host of The Alternative Investment Podcast. He resides in Michigan.