Yes, there's a difference. The charitable donation is an inclusion event and the transfer to the grantor trust is not. Therefore, the charitable donation would need to be considered alongside the resulting capital gain event.
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What happens if I donate an interest in a QOF to a charity?
Is there a difference if I gift the investment to a grantor trust?
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That will be an inclusion event. The regulations state that the contribution to a grantor trust is not an inclusion event because the owner will still be taxed on the income generated.
Donation of a qualifying QOF interest to a charity is what the proposed regulations call an inclusion event. An inclusion event that happens before Dec. 31, 2026, accelerates your deferred gain and causes that gain to be recognized immediately, subject to the 15% exclusion for QOF interests you've held for seven years and the 10% exclusion for QOF interests you've held for five years. If the donation is made after the QOF interest has been held for at least 10 years, if gain is recognized in connection with the donation, you could elect to exclude that gain. If the donation is made before you've held the interest for 10 years, no 10-year benefit would be available to you. A transfer of a QOF interest to a grantor trust is not an inclusion event and does not accelerate the deferred gain; it is as if there had no transfer of the QOF interest. The QOZ rules are complicated and detailed. You should consult your own tax advisor.
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