It is possible to contribute property in a non-recognition transaction.
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What if a taxpayer makes an equity investment in a QOF by contributing property in a nonrecognition transaction?
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Can contribute property and use the value of same as a capital gains contribution if have other capital gains that equal said value. Property must have been purchased after 2017 to count.
There is zero tax benefit to any QOF investment that is not capital gains.
Only deferred gain dollars get the Opportunity Zone benefit. This is nontaxable but it is not entitled to the Opportunity Zone benefit.
I don't know. I think you need a tax lawyer for that one.
I will need more details to answer. If a taxpayer wants the deferral benefits, a contribution must be of a gain realized. If not, then the investment will not qualify for deferral.
As long as the taxpayer had capital gain, the QOF investment can be made with contributed property, rather than cash. However, if the FMV if the contributed property exceeds its basis, the QOF investment is bifurcated between the portion receiving the no tax on appreciation benefit (equal to basis) and the portion that does not qualify for the benefit (excess over basis).
The contribution does not need to be in cash. However, there must be a capital gain from another source to get all the tax benefits. Here is the scenario. A taxpayer has a gain of $1 million from sale of stock. The taxpayer separately contributes building and land worth $1 million to an Opportunity Zone fund. The contribution will defer the gain to the extent of basis in the property contributed. If contributing to the fund, the interest in the fund must be under 20% or the deferral will be lost due to related party rules. There will be other complications related to whether a gain will be recognized on the contribution of the property. We need to know all facts related to the full transaction. It is a must that you seek out competent tax counsel for a transaction this complex.
What happens in this case is that the taxpayer gets QOZ deferral credit to the extent of the basis in the property, not fair market value. Any difference between FMV and basis leads to mixed investment treatment.
The following are the most significant considerations when a taxpayer contributes property to a Qualified Opportunity Fund in a nonrecognition transaction. 1. Deferred gain: The Qualified Opportunity Fund investor’s deferred gain is the lesser of its adjusted basis in the eligible interest received in the transaction or the fair market value of the eligible interest received in the transaction, both as determined immediately after the contribution. 2. Mixed fund investment: If the fair market value of the eligible interest received exceeds its adjusted basis, then the taxpayer’s investment is an investment with mixed funds to which section 1400Z-2(e)(1) applies. The excess of the fair market value of the investment over the taxpayer’s adjusted basis therein is treated as a separate investment not eligible for Opportunity Zone tax benefits. 3. Section 704(c): The regulations provide that Section 704(c) principles apply to partnership allocations attributable to property with value-basis disparities to prevent inappropriate shifts of built-in gains or losses between qualifying investments and non-qualifying investments. In other words, partners contributing appreciated property to a qualified opportunity fund will not be eligible to exclude the pre-contribution gain upon the sale of the qualified opportunity fund interest, even if such sale occurs more than 10 years after the contribution of the appreciated property. 4. Contribution of property to Qualified Opportunity Zone business: If the contributed property is subsequently contributed by the Qualified Opportunity Fund to a qualified Opportunity Zone business, any membership interest obtained by the Qualified Opportunity Fund as a result of such transfer will not be considered Qualified Opportunity Zone property because it will not satisfy the solely in exchange for cash requirement.
I'm not sure I understand your question here. There are no tax benefits under the Opportunity Zone provided by making a contribution of property to a QOF. The benefits only arise if cash proceeds are invested to the extent of realized capital gains within the appropriate 180 day period which starts at different times depending on the circumstances, but it is no earlier than 180 days for the date of the sale and realization of capital gain. It could be later when there is Sec. 1231 property or pass-through interests involved.
There are special rules for determining the amount of the investment for purposes of the deferral election if a taxpayer transfers property other than cash to a QOF in a carryover basis transaction. In such a case, the amount of the investment equals the lesser of the taxpayers' adjusted basis or the FMV of the property received in the transaction, both of which are determined immediately after the transaction.
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