If I sold property this year as a shareholder of an S corp, how do I best take advantage of the OZ program?

Answers

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  Peter McNeil

  Comprehensive Financial Solutions and Tax

  December 10, 2019

  Since the gain comes from a pass-through entity, you have 180 days from Dec. 31, 2019 to invest the gain in an Opportunity Zone fund and get the tax benefits of deferral and future tax-free capital gains. Because your basis is increased by 10% after five years of holding and another 5% after seven years, you would need to invest the gain prior to Dec. 31, 2019 to get the full 15% step-up in basis prior to 2016. However, don’t rush into an investment for just a 5% step-up. The big pay off will be getting future capital gains tax free after 10 years.

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  Jonathan McGuire

  Aldrich CPAs and Advisors

  December 10, 2019

  The S Corporation can elect to defer the gain or it can pass it out to you as a shareholder. If you receive the gain via a K-1, you then can defer the gain beginning Dec. 31 for the tax year received or can elect to use the gain period of the S Corporation for the 180-day rule. Be wary though as this might be a Dec. 31 gain which would force you to net it with other 1231 gains or loss. It would be best to sit down with your tax advisor to discuss or reach out directly to one of the OZ expo CPAs that are verified.

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  Matthew Rappaport

  Falcon Rappaport & Berkman

  December 10, 2019

  It depends on too many factors. If the gain flowed through a K-1 from your S-Corp, you'd have flexible timing for reinvestment under most circumstances. Determining exactly when to deploy these gains would be a matter of seeing what type of investment you'd want to make and what the situation is surrounding that particular investment.

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  Matt Campbell

  Hall Estill

  December 10, 2019

  You have 180 days from the capital gain triggering event for the S corporation or you yourself to make a decision to make a qualifying investment into a qualified Opportunity Zone. If you want maximum tax benefits, you should look to do that by Dec. 31 this year.

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  Erik Kodesch

  Lane Powell

  December 10, 2019

  By Dec. 31, 2019, either through the S Corp or on your own.

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  Guy Nicio

  Windes

  January 24, 2020

  If you are saying that the S corporation owned real property (as opposed to you personally) that it sold, then the S corporation has 180 days from the date of sale to decide to reinvest proceeds up to the amount of capital gain from the sale in an Opportunity Zone Fund. However, I would argue that you should not hold real property (generally an appreciating asset) in a corporation at all and I don't know why it would have been structured that way to begin with. Instead of reinvesting at the entity level, you can personally decide to invest proceeds into an OZF during your allowed 180-day period which beings on the due date of the S corporation tax return or March 15th. In summary, I would think the best course of action is that if you find an OZF that you are interested in investing in, the timing would be to invest personally (not through the S corporation) sometime after March 15, 2020 and before 180 days after that.

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