<\/p>\n
The Qualified Opportunity Zone (QOZ) program provides tax incentives to invest in designated low-income communities across the United States. Tax law changes enacted last year made the program permanent and altered it, with implications for investors under both the original and renewed programs. With proposed, and eventually final, regulations on the way, the IRS has released some transitional guidance for investors, Qualified Opportunity Funds (QOFs) and Qualified Opportunity Zone businesses (QOZBs).<\/p>\n
QOZ basics<\/strong><\/p>\n The QOZ program was created by the Tax Cuts and Jobs Act (TCJA). It generally allows taxpayers to defer \u2014 and possibly reduce or eliminate \u2014 short- or long-term capital gains from the sale of their investments by reinvesting the gains in a QOF within 180\u00a0days.<\/p>\n QOFs must maintain at least 90% of their assets in QOZ property. Qualifying investments include those in QOZBs and in new or substantially improved commercial buildings in\u00a0QOZs.<\/p>\n Under the TCJA, the tax benefits from investing in a QOF are generous. Taxes on the \u201crolled over\u201d capital gains are deferred until the earlier of 1)\u00a0the sale or exchange of the taxpayer\u2019s investment (an \u201cinclusion event\u201d), or 2)\u00a0December\u00a031, 2026. Investors receive a 10% step-up in basis for the investment after five years, so only 90% of the rollover gain is taxable. After seven years, the step-up increases to 15%. Gains on investments left in a QOF for at least 10\u00a0years are fully tax-exempt.<\/p>\n The One Big Beautiful Bill Act (OBBBA) established a permanent QOZ program with rolling 10-year QOZs. The first round of newly designated zones eligible for investment will begin January\u00a01, 2027. It\u2019s expected that about 6,500 new zones will be designated. The original QOZ designations generally expire on December\u00a031,\u00a02028.<\/p>\n Under the permanent program, rollover gains can still be deferred, with a 10% step-up at year five. At that point, though, the rollover gains must be recognized. And the additional step-up at seven years has been eliminated. But the permanent exclusion of gains on the QOF investment itself after 10 years remains intact, for up to 30\u00a0years after investment. The OBBBA also created a new kind of QOZ for rural areas, with a 30% step-up on the rollover gain after five\u00a0years.<\/p>\n What\u2019s in the guidance?<\/strong><\/p>\n The guidance in IRS Notice\u00a02026-40 addresses several issues of concern, including:<\/p>\n Treatment of existing QOF investments.<\/strong> Investors who hold a qualifying investment through December\u00a031, 2026, must include the amount of remaining rollover gain from the investment in their income for the tax year that includes that date. Notably, they can\u2019t defer that gain by rolling it into a new\u00a0QOF.<\/p>\n Existing QOF investors can opt to continue to hold those investments. If investors reach the 10-year holding period and satisfy certain requirements, they can elect to adjust the basis at sale or disposition to the investment\u2019s fair market value at that time, thus eliminating taxable gains after the date of the original investment.<\/p>\n The treatment of gains on an inclusion event that occurs before<\/em> December\u00a031, 2026, differs from that of gains where the investment is still held on<\/em> December\u00a031, 2026. In the former situation, the recognized gains may be eligible for deferral by making a new qualifying investment within 180\u00a0days. But the clock on the 10-year step-up in basis will start over and run from the date of the new investment.<\/p>\n Tangible property acquired after 2026.<\/strong> Under the OBBBA, property acquired by a QOF or QOZB after December\u00a031, 2026, generally can\u2019t be treated as QOZB property unless it\u2019s acquired for use in a QOZ designated after July\u00a04, 2025. That means tangible property acquired after 2026 generally can\u2019t qualify as QOZB property if it\u2019s in one of the originally designated\u00a0QOZs.<\/p>\n However, the guidance outlines two exceptions that allow tangible property acquired by QOZBs after 2026 in an original QOZ to qualify:<\/p>\n QOZBs and QOFs that are active in existing QOZs should ensure they can satisfy one of these requirements before the end of\u00a02026.<\/p>\n Seize the opportunities<\/strong><\/p>\n In addition to the above, the IRS guidance provides transitional rules, including safe harbors for how QOFs and QOZBs can continue to treat a location as if it were in a QOZ after an existing designation expires. Questions? We can provide further details on the new QOZ guidance and explain how it can benefit your tax situation.<\/p>\n \u00a9 2026 <\/em><\/p>\n <\/body> The Qualified Opportunity Zone (QOZ) program provides tax incentives to invest in designated low-income communities across the United States. Tax law changes enacted last year made the program permanent and altered it, with implications for investors under both the original and renewed programs. With proposed, and eventually final, regulations on the way, the IRS has […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,59,10],"tags":[8,11,12],"class_list":["post-17579","post","type-post","status-publish","format-standard","hentry","category-articles","category-etra","category-news","tag-articles","tag-news","tag-updates"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17579","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=17579"}],"version-history":[{"count":1,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17579\/revisions"}],"predecessor-version":[{"id":17580,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17579\/revisions\/17580"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=17579"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=17579"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=17579"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
\n<\/html><\/p>\n","protected":false},"excerpt":{"rendered":"