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Qualified Opportunity Zone Program Investing Extended

By Greg Gilbert, CFP®

CEO and President, Infinity Financial Services

Qualified Opportunity Zone Program Investing Gets Extended Deadlines

One way investors may strive to earn more return is by taking advantage of Opportunity Zone Program (QOZ) Funds, which have significant tax advantages. When they invest in this way, they can save money on their tax bill, while also having a sense of contributing toward the greater good.

Recently, the federal government has extended deadlines for qualifying for tax breaks on certain investments in these programs as a part of its COVID-19 relief efforts, according to new guidelines issued from the U.S. Treasury Department in December. 
That means investors have a longer time period to take advantage of these tax breaks, which the IRS confirmed in its notice on January 19, 2021. Now, investors have until March 31, 2021 to leverage capital gains made in 2019 or 2020 into the Qualified Opportunity Zone program. 

What is the Qualified Zone Program (QOZ)?

To improve certain communities, the federal government has identified areas that are struggling or in economic distress where investors can receive tax advantages. These zones were created in 2017 because of the Tax Cuts and Jobs Act. 

The idea is that the tax breaks encourage more investing, which can help these communities grow and improve. Investors can invest in funds connected with these areas, or directly in properties there.

New Deadlines in More Detail

The time burdens and cost of compliance have increased dramatically and continue to

climb. Consequently, in recent years, a growing number of technology start-ups have

developed innovative cloud-based strategies to assist financial services firms with

compliance. Using big data, artificial intelligence (AI), Machine Learning (ML), data

mining and analysis, blockchain, and more, these RegTech companies offer tools to

help firms to deliver compliance programs that are far more effective and efficient. 


Identifying Non-Compliance in Real-Time

The IRS (2021-10) has applied its relief for taxpayers investing in QOFs for investors

who have a 180-day investment period that would have ended on a date between

April 1, 2020 and March 31, 2021.

Any type of gain made on or after Oct. 4, 2019 – no matter if itis a short-term or

long-term gain, is still eligible to be invested in the Qualified Opportunity Zone program

through March 31,2021.


Regarding property gains, there is one thing to note. If an investor has earned those

gains from a sale less than 180 day before March 31, 2021, then they will only have

that 180 days from the date of the sale to invest with a Qualified Opportunity Fund.

Regarding K-1 Partnership gains, there are a few things to note about how to calculate

a 180-day window that can give financial advisors more planning options. There are

three ways to calculate that window. 

How Investors Benefit From QOZ Tax Advantages

Investors have two ways that they can receive tax advantages from investing in a Qualified Opportunity Fund.

1.  Deferring Tax. Investors can put off paying tax on “any prior eligible gain to the extent that a corresponding amount is timely invested in a Qualified Opportunity Fund (QOF).” The deferral lasts until the investment in the fund is sold, or until December 31, 2026, whichever date is earlier, according to the rules.

  • If an investor holds the fund for at least five years, then they can receive a 10% exclusion of the deferred gain.

  • If an investor holds the fund for at least seven years, then they can receive a 15% exclusion of the deferred gain.

  • The amount of eligible gain declines as the amount of eligible gain you deferred goes beyond the fair market value of the investment. 

2.  Adjustment to fair market value. Investors who hold their QOF investment for 10 years or more are eligible “for an adjustment in the basis of the QOF investment to its fair market value on the date that the QOF investment is sold or exchanged.” 
So, that means that when an investment in the QOF increases in value, that appreciation is not taxed. 

The Bottom Line
Investors can take advantage of the extended relief for qualified opportunity funds and enjoy the several tax advantages through these investment types. For more information, see the U.S. Treasury Department’s official final regulations or the IRS notice 2021-10.

Infinity Financial Services is a national, independent Investment and Wealth Management firm, founded with a vision: help enterprising financial professionals to grow truly independent, successful practices, leveraging leading-edge technologies and firm support. Based in Oakland, California, with branch offices around the U.S., Infinity's financial professionals offer an array of asset management, brokerage, insurance, financial planning, benefit plan, insurance, and risk management services. This article provides information for investment professionals. It is not intended for use by the general public.