Yes, A QOF can sell, but if the fund is not invested for 10 years in the Q Zone, a major tax benefit is lost. If it is real estate, it is possible for a QOF and 1031 to invest in another OZ property.
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How can a QOF sell assets?
Can the Qualified Opportunity Fund reinvest the sale proceeds in another QOF?
Answers
The QOF can sell assets just like any other normal business enterprise. The only unique items is that the basis of the gains would be stepped up to the members that have held the investment for 10 years. A QOF may not invest in another QOF.
QOFs can sell assets, but if the sale occurs prior to eligibility for an exclusion from taxes based on a 10-year holding period, normal income tax consequences apply. The QOF will need to employ tax deferral techniques to get around this.
A QOF cannot be invested in another QOF. The final regulations to give the QOF a short period of time to reinvest proceeds into new QOZP, but this does not change the gain at the QOF level. The investors of the QOF, if it is a flow-through, could defer their share of any such gain be reinvesting into a QOF though.
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