The gain from property in Germany should be capital gain that can be deferred by investing in an Opportunity Zone fund.
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How can a U.S. citizen who sold real estate abroad benefit from Opportunity Zone tax benefits?
I am a U.S. citizen who sold real estate in Germany and is paying capital gains to the IRS. How can I invest those capital gains in an Opportunity Zone fund or project and reap the deferred or reduced tax benefits?
Answers
As a U.S. citizen, you are subject to U.S. tax on your worldwide income. Assuming the transaction in Germany results in capital gain payable to the U.S. Treasury, you should have the same ability to reinvest the capital gain into a Qualified Opportunity Fund within the requisite 180-day period. Note, however, that the foreign tax credit you may receive in connection with the sale may be suspended until the deferral with respect to the reinvested gain is recognized.
All taxable capital gains qualify for the deferral as long as you invest in a Qualified Opportunity Fund within 180 days of the sale of the asset creating the gain. Then the future gains from the investment will also be tax-free if the asset is held for 10 years. Keep in mind that you can use 180 days from years of partnership or another pass-through entity if the asset is held in such an entity.
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