Same as normal transfer rules - generally tax-free. However, the transferred property is not a qualified property for purposes of the 70% qualified property test.
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How can I transfer a property, which I co-own with my colleague, into a QOF?
How does that work when we file our taxes?
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You can transfer property into a QOF, but transferring property you co-own is interesting. You would need to navigate through a tangle of issues, including making sure the taxpayer contributing to the QOF is the same taxpayer deferring capital gain; navigating mixed investment consequences; negotiating with your partner about ownership interest in the QOF itself; potentially differing investment objectives if your partner does not have an interest in notching QOF tax benefits; and eligibility of the contributed property to be treated as qualified OZ business property. Tax structuring strikes me as much more important here than tax reporting.
A straight transfer of property in one Opportunity Zone into another Opportunity Zone will not get tax benefits. You would need to sell the property to the fund. Then the capital gain from the fund would be eligible for the tax benefits. If the new ownership inside the fund is more than 20%, you will be in excess of related party rules and still not get tax benefits. The best would be to sell to an unrelated party and invest in an unrelated Opportunity Zone Fund. There are other solutions that are esoteric to get into on this forum.
Yes. A taxpayer can transfer property other than cash as an investment to a QOF. However, a transfer of non-cash property may result in only part of the investment being eligible for opportunity zone tax benefits, so that not all of the taxpayer’s capital gain is able to be deferred. See proposed regulations §1400Z2(a)-1(b)(9) & (10).
The second set of regulations allows for the transfer of properties to a QOF but certain rules apply.
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