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Can I use capital from a QOZ sale for other purposes?

I understand that my QOF has a year to reinvest capital from the sale of a QOZ property in another QOZ asset. But am I allowed to do other things with the capital in the meantime, as long as I free it up again and reinvest in a QOZ asset within 12 months of the original sale?


Answers
  • Erik Kodesch
    August 17, 2019

    I think the potential problem is whether the intermediate investment is qualified property at the six-month testing date that occurs during the 12 months. I believe the cash proceeds from the sale are essentially treated as working capital. However, if you use the cash to make an investment that is beyond something into which working capital can be invested while it is working capital, there may be an issue. That said, I would need to do more research before being able to give a definitive answer.

  • Maria De Los Angeles Rivera
    August 15, 2019

    No. The QOF needs to keep it in cash, cash equivalents or debt instruments 18 month or less until a new project is found. If you invest it in non-qualified assets, you may exceed the 10% allowed.

  • Peter McNeil
    August 13, 2019

    Per the regulations, the proceeds must be continuously held in cash, cash equivalents, and debt instruments with a term of 18 months or less.

  • Matthew Rappaport
    August 13, 2019

    I'm struggling to think of how you would accomplish this while maintaining compliance. If you take the proceeds out of the QOF, you risk an inclusion event. If you leave the proceeds in the QOF but invest in something else, you risk failing the 90% test. While the rules might theoretically allow this, you'd either run afoul of the anti-abuse rules or outright fail the statutory requirements. Hypothetically, if a client approached me with this, I would not recommend doing it.

  • Pat Cardwell
    August 12, 2019

    You can roll it over to another QOZ opportunity. But confirm that with your accountant.

  • Blake Christian