Is there anything I should be sure to do (such as deploying capital) before assuming QOF status?
If you do not have a project yet, delaying the formation of the QOF can buy you more time to find a qualifying investment. But you should be mindful of the date that any eligible gains expire, since those need to be invested into a QOF before the 180 day reinvestment period expires.
Delaying the date of the QOF election delays the start of the 90% and 70% qualified property tests and delays the start of the 31-month period for working capital.
There is a bit of timing strategy. First, you need to make sure your 180 day period has started - especially if you are dealing with an IRC Section 1231 net gain. Secondly, by pushing out the formation and self-verification date - which needs to be prior to the funding date, you can manage the dates of your semi-annual testing. You don’t want to fund or deploy cash prior to the self-certification date.
There are no tax benefits to delaying the establishment of a QOF per se, but if you don't know that you are going to see the QOF through completely, it may be a waste of time and money to form the entity, etc. And there is no benefit I can see to deploying capital prior to assuming QOF status.
There aren't any tax benefits per se, but you should line up your QOZ deal as far in advance as possible and ascertain capital requirements and availability.
Yes, in the sense that a lot of timelines begin with the creation of the fund (and, perhaps more to the point, the investment of money). However, there is a time clock on the benefits, too, so you don't want to wait too long. You'll want to consult with your accountant and attorney on the best timing for you.
In answer to your question, the full benefits can only be realized if the investment is made prior to December 31, 2019 and the capital must be deployed within a reasonable time after the investment is made.
Remember that "establishing" a QOF doesn't actually do anything. The regulations make clear that having formed your QOF, you can then delay literally declaring it a QOF and making your investment. So, if you know that you are going to form a QOF, then setting up your QOF right away (but not capitalizing it) saves the risk that your legal/tax professional goes on vacation (or gets busy) when you actually want them to write you an agreement and have it qualified under local law. However, "establishing" is different from "investing." So, if you don't really know what you are going to do with the money, then presuming that you take care to get your investment in by the 180th day (after the capital gain for portfolio gains and 12/31 for Section 1231 gains), delaying the actual investment gives you two benefits -- (1) the 6-month period for testing the QOF's compliance with the 90% test is delayed, and (2) you can use the money to pay for something else (e.g., buy a boat, and then borrow the money for your QOF investment at a later date) or simply invest it in something that is more profitable in the short term (e.g., the stock market). Once the money is actually in the QOF's name, there are pretty strict limitations on what you can invest in. Of course, there are look-back rules for computing the 90% test at the QOF level (you get to ignore amounts received in the past 6 months if they are invested in cash-like investments and short term debt), and similarly, the 70% test at the subsidiary entity level is passed if you put the money in such cash-like investments, provided you have a 31-month plan to deploy the capital on a qualifying project.
Given the tight requirements for qualification as a QOF, one of the major components will be the projects you have identified and their timeline for deployment of investment.
Benefits generally favor earlier investment (for example, 2019 is the last year to invest if you want to be eligible for a 15% reduction in capital gains tax due in 2026), but you might choose to wait in order to ensure you have a clear idea of where you'd like to invest or to give yourself a little more leeway on your first testing date.
Delaying the start date of QOF status is helpful if you fear that you won't find a qualifying investments in time. The QOF needs to invest in the QOZB, so unless you have a bridge source for the equity, you'll want to raise your QOF equity and then invest it in a business.
The most important determination of when to elect to be treated as a QOF is to be sure that you are established as a QOF prior to taking your first deferred gain investment. The QOF is subject to the 90% investment standard after creation, and planning for disbursement of invested funds should be considered upon creation.
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