You pay the capital gains rate of the year when the inclusion event happens. In your case, that of 2025.
Ask A Question
What happens to the deferred tax liabilities if capital gains tax rate changes?
If I make an OZF investment in 2020, hold that investment for five years and defer the capital gains on the invested capital until 2025, what would be the implications of an increase in capital gains tax rate in say, 2022? Is there a situation where even with the 10% step-up in basis, the investor could end up paying higher capital gains given the increased rate by the time the deferred taxes are due?
Answers
The rate on which the deferred capital gains are taxed is the prevailing rate during the year of recognition. The preamble to the regulations is absolutely clear on this point. You will face the risk that the rates go up and you'll owe more than you did originally. You'll have to weigh that risk against the five-year benefit.
The regulations clearly state that the tax rate that will apply is the tax rate at the moment or for the year of recognition.
DISCLAIMER:the information found on this website is intended to be general information; it is not legal or financial advice. Specific legal or financial advice can only be given by a licensed professional with full knowledge of all the facts and circumstances of your particular situation. You should seek consultation with legal and financial experts prior to participating in any aspect relating to Opportunity Zones. Posting a question on this website does not create an attorney-client relationship. All questions you post will be available to the public; do not include confidential information in your question.