With tax season comes deadlines, and deadlines consistently approach faster than we expect. An important deadline that pass-through entity investors need to keep top of mind is June 29, 2019. This is when partners and S corporation shareholders who were allocated gain on their 2018 K-1s need to determine if they will reinvest that gain into a Qualified Opportunity Zone.
As a reminder, the Qualified Opportunity Zones program was rolled out as part of the 2017 Tax Cuts and Jobs Act (TCJA). The program allows taxpayers to defer gains they realized if they reinvest said gain into a Qualified Opportunity Fund within 180 days. Further, the gain can have partial permanent abatement if the investment in the fund is held long enough. Then the investment itself can have permanent tax savings if you stay in the Fund for 10 years. For full details and examples on Qualified Opportunity Zones checkout our blog post that covers full details of the new investment vehicle created by the TCJA.
June 29, 2019 becomes an important date since those taxpayers who were allocated capital gains on their 2018 Schedule K-1s have until that date to rollover some or all of those gains. This is because recently issued IRS regulations deem the date of the gain recognition event to be December 31, 2018 for investors in S corporations and partnerships, not the date the asset was sold that created the gain. So that pushes the 180 day mark to June 29, 2019.
To be worthwhile, the gain realized in 2018 should be significant. Obviously, while tax deferral and permanent tax avoidance are excellent benefits to have when investing, a good investment is still required when investing in a Qualified Opportunity Fund (“QOF”).
You need to elect the deferral of gain on your 2018 tax return. If you have not filed your 2018 return yet and are contemplating an investment into a QOF, you may wish to extend that return to give yourself time – as long as the reinvestment period of 180 days from the realization event has not yet expired.
There are multiple resources on QOF therefore it is important to lean on accurate information from sites like this and before making any investment into QOF’s it is important to speak to your tax advisor.
