The regulations state you can get the 10-year holding benefit if you sell anytime prior to Dec. 31, 2047. Final regulations may even extend that date.
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What happens at the 10-year mark when the investor has to sell? Do I need an exit strategy?
I have heard that the OZ property definition will expire after 2028. What happens to those who sell in 2029?
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As long as the OZ fund is purchased before Dec. 31, 2028, and held for 10 years, and sold before Dec. 31, 2047, then it will be tax-free. There is no worry about selling after Dec. 31, 2028. If the fund interest is sold after Dec. 31, 2047, the basis will be the value on Dec. 31, 2047. The only issue is that the fund manager should not liquidate the fund sooner than 10 years after the last investor gets into the fund. The other exit strategy is really for estate planning. There is no step-up in basis upon death. Estate planners may wish to have provisions in a trust that the OZ assets cannot be distributed to heirs until the 10-year holding period is completed.
To obtain the QOZ benefit of no tax on appreciation, an eligible QOF investor must hold its QOF interest for at least 10 years and the eligible QOF investor must dispose of its QOF interest on or before Dec. 31, 2047. Or, the eligible QOF investor can avoid tax on appreciation taxed as capital gain if the eligible QOF investor holds its QOF interest for at least 10 years and the QOF sells its QOZBP or QOZB interest on or before Dec. 31, 2047. The QOZ rules are complicated and intricate. You should consult with your own tax advisor.
It is actually Dec. 31, 2026. All you have to do is enter the OZ program by that date.
The regulations extend until 2047 to elect for the exclusion of the gain if the investment is held for at least 10 years. The exit strategy must be part of the due diligence made in the first place.
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