What happens if an Opportunity Zone investor misses the Dec. 31 deadline to invest?

Answers

• 

  Marko Belej

  Taft

  December 23, 2021

  Yes, assuming that the investor's 180-day period to invest gains has not lapsed, they can still invest in 2022 and generally receive (1) a deferral of the invested gain until the earlier of December 31, 2026, and an inclusion event, and (2) an exclusion of future gain on the Qualified Opportunity Fund (QOF) interest, if they hold the QOF interest for at least 10 years. By investing after December 31, 2021, the investor misses out on a third potential OZ benefit, the permanent exclusion of 10% of their deferred gain (assuming that they would have held the QOF interest for at least five years). As an example, if the investor invests $100 and is subject to a 20% tax rate in 2026, they will pay an additional $2.00 of taxes in 2026 (10% * $100 * 20%).

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  Matthew Rappaport

  Falcon Rappaport & Berkman

  December 23, 2021

  The 12/31/2021 deadline is only for an increase in basis after a five-year hold, rather than a hard deadline to invest in the program altogether. This is a small benefit that, in my experience, does not really drive investment into OZs. The rest of the features and benefits are still available for investments between 12/31/2021 and the true deadline, which for now appears to be for capital gains incurred by 12/31/2026.

• 

  Valerie Grunduski

  Plante & Moran, PLLC

  January 04, 2022

  Investing in a Qualified Opportunity Fund (QOF) and receiving the end benefit is currently available on gains through Dec. 31, 2026. The benefit that expired Dec. 31, 2021 was related to the 10% reduction in capital gains subject to tax in 2026 from the original investment. As such, having missed a Dec. 31, 2021 investment deadline would have cost 10% of the capital gain to be invested at whatever the capital gain rate is in 2026.

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