Good news to everyone who haven’t found an Opportunity Zone to invest in yet! The IRS recently announced that all investors who have had a capital gains event deadline of 180 days that fall on or after April 15th, may have additional time to invest. Now you have until December 31st, 2020 to invest your capital gains to defer payment on those taxes. IRS article here.
The net effect is that if you sold your stocks on October 18th, 2019 or later, you can defer payment of those capital gains taxes. Consult with your CPA to see if you can file an amendment for those that did already file taxes and and have capital gains during that period.
For those not familiar with Opportunity Zones, the basic premise allows for an investor to sell an asset (stocks, businesses, or real estate) and defer the taxes owed on capital gains by investing the capital gains portion into a Qualified Opportunity Zone Fund (QOZF). This Fund then invests in a Qualified Opportunity Zone Business, which must meet several criteria to qualify. The most common two criteria is that it is in an Opportunity Zone (a local state designation) and have an improvement of 100% of it’s original cost basis.
The benefits of an Opportunity Zone is enormous. They are:
- Tax deferral of capital gains. You basically get to defer your capital gains and then transform them into long term capital gains. Short term capital gains on sale of stocks count for deferral. Deferring the same amount of taxes you owe to a lesser class-action is an amazing benefit. Instead of having $30k of a $100k gain go towards taxes, now you can invest the whole $100k and compound your gains.
- Reduction of capital gains taxes. After holding it for 5 years, you are able to reduce your capital gains by means of increasing the cost basis of your original investment by 10%. This means you generally owe 10% less taxes.
- Elimination of future capital gains. This one is huge! If you hold the asset for 10 years, any appreciation on the asset, and thus any future capital gains will be eliminated for tax purposes and you will not owe any taxes.
Given these benefits, anyone selling during this market should explore opportunities to invest in an Opportunity Zone. Touzi Capital has two projects underway, one that is already fully subscribed, and the other is a bit earlier in its lifecycle, but we expect this one to also have a huge demand. Please connect with us and inquire about our Opportunity Zone investments and how we can help you defer and save on your taxes.
