2429. Deferral and exclusion of gains invested in Qualified Opportunity (QO) Fund before 2027:
At the taxpayer's election on the sale or exchange of any property to an unrelated person:
(1) Gross income for the tax year doesn't include gain up to the aggregate amount invested by the taxpayer in a Qualified Opportunity Fund during the 180-day period beginning on the date of the sale or exchange (the temporary deferral election); (2) Gain excluded under (1) is included in gross income as provided by Code Sec. 1400Z-2(b) (see below); and (3) The permanent exclusion of certain gain from the investment in the Qualified Opportunity Fund is determined under Code Sec. 1400Z-2(c) (the permanent exclusion election).
No elections can be made for a sale or exchange if a Code Sec. 1400Z-2 election previously made with respect to the sale or exchange is in effect.
A Qualified Opportunity Fund is, in general, any investment vehicle organized as a corporation or partnership for the purpose of investing in QO Zone property that holds at least 90% of its assets in QO Zone property (as defined in Code Sec. 1400Z-2(d)). A QO Zone is a low-income community population census tract that has been nominated by the CEO of a state and certified by the IRS as such, under the procedures described in Code Sec. 1400Z-1(b). Each population census tract in Puerto Rico that is a low-income community is considered to be certified and designated as a QO Zone. A designation ends at the close of the 10th calendar year beginning on or after the date of designation. (Code Sec. 1400Z-1(b))IRS issued a complete list of all population census tracts it has designated as QO Zones.
Qualified Opportunity Fund gain temporarily deferred under item (1) above is included in income in the tax year that includes the earlier of the date on which the investment is sold or exchanged, or Dec. 31, 2026. The amount of gain included is the lesser of (a) the deferred gain or the FMV of the investment, over (b) the basis in the investment. Gain excluded under the temporary deferral election is included in income in the tax year that includes the earlier of the date on which the investment is sold or exchanged, or Dec. 31, 2026. Permanent exclusion: At the taxpayer's election for an investment held for at least 10 years, the basis of the property equals the FMV of the investment on the date it is sold or exchanged, Code Sec. 1400Z-2(c)) thereby excluding from income any post-acquisition capital gains on investments in QO Funds that are held for at least 10 years.
For basis of an investment in Qualified Opportunity (QO) Funds.
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