Opportunity Zones: Part 1- Qualifications (Completed)

The 2017 TCJA added a new deferral mechanism for capital gains realized from any source. The taxpayer can realize a capital gain and then reinvest only the amount of the gain in a qualified opportunity fund (QOF) within 180 days of the realization event. This allows the gain to be deferred until 2026, when it is recognized without regard to whether the QOF interest is sold. If the interest is held for at least 5 years before 2026 a basis adjustment allows 10% of the deferred gain to be eliminated. If held for 7 years another 5% of the deferred gain goes away. This means it is possible that only 85% of the deferred gain is recognized in 2026. In addition, if the investment is held for 10 years any appreciation on the investment can be realized without paying any tax.

Professional tax advisers will need to understand this provision in two situations. First, they may have a client who wants to establish their own QOF and needs help with the structure. Second, they may have a client who wants to invest in a QOF and needs an advisor to analyze the structure of the investment to ensure the opportunity zone investment benefits will be realized.

In this two-hour CPE course nationally recognized tax expert and instructor James Hamill, CPA, Ph.D., will explain the qualification and election issues to defer gains into a QOF. Dr. Hamill will also discuss how to avoid potential traps when investing in a QOF.

This is Part I of a two-part series in opportunity zone investments. This part will focus on the qualification issues to defer gain. It will not address the structure of a QOF and exit strategies for the investment – that will be addressed in Part II.

Who Should Attend
CPAs, EAs, tax preparers and other tax professionals with responsibility for assisting clients with tax-planning strategies.

Topics Covered

• Gains eligible for deferral, including special provisions for Section 1231 gains
• Measuring the 180-day investment period
• Basis adjustment provisions
• Tax elections to be made
• Special issues with partnership-level gains
• Basic comparison with 1031 deferral strategy
• Special COVID-based timing for 2020 investments

Learning Objectives

• Identify taxpayers who are candidates for gain deferral
• Recognize how to quantify the benefits of the deferral
• Determine how to achieve the optimal tax deferral
• Recognize how to explain to an investor client how the provisions work
• Recognize how to assess a particular project to determine if it is structured properly
• Identify how help a client structure a project investment
• Describe how the investor is affected
• Differentiate the four major tax incentives available as a result of the TCJA with respect to designated opportunity zones
• Recognize correct statements with respect to short-term capital gains
• Identify characteristic of a qualified opportunity zone property
• Differentiate characteristics of Section 1400Z-2 vs. Section 1031
• Describe how many days within the gain recognition event a partnership must elect a qualified opportunity fund deferral of an entity-level gain, the partnership investment
• Differentiate characteristics of a big investment fund vs. a boutique fund
• Recognize what percentage of the qualified opportunity fund assets must be invested in the opportunity zone property to qualify as an opportunity zone
• Recognize the IRS forms applicable to qualified opportunity zone property

Level
Intermediate

Instructional Method
Group: Internet-based

NASBA Field of Study
Taxes (2 hours)

Program Prerequisites
Basic understanding of opportunity zones.

Advance Preparation
None