Ask A Question

Does my money actually have to be invested for a full 10 years to get a step up in basis for the appreciation tax benefit?

Does my money actually have to be invested for a full 10 years to get a step up in basis for the appreciation tax benefit? What if it’s only invested for 5 years? Do I get a step up in basis regardless?


Answers
  • Matthew Rappaport

    Matthew Rappaport

    Falcon Rappaport & Berkman
    May 23, 2019

    To get a step-up in basis to match the capital appreciation of the OZ investment, the money must be invested for 10 years, but there are friendly rules governing cash-out refinances of OZ assets. If money is invested before Dec. 31, 2019, and is held in the QOF for seven years, the QOF interest gets a 15% step-up in basis. If money is invested before Dec. 31, 2021, and is held in the QOF for five years, the QOF interest gets a 10% step-up in basis.

  • Blake Christian
    May 10, 2019

    You will get a 10% step-up after five years, but if you hold for less than 10 years, you will not be entitled to the full exemption.

  • Jose Torres

    Jose Torres

    Monllor Capital Partners
    May 09, 2019

    There are 2 different tax incentives. One is a step-up in basis of 10 percent after five years on the original deferred amount and another 5 percent after seven years. But to get a step-up in basis to FMV on appreciation when you sell you need hold the investment for at least 10 years.

  • Justin Gardinier

    Justin Gardinier

    Habitas Opportunity Capital
    May 08, 2019

    If you invest your capital gains prior to Dec. 31, 2019, and hold it for seven years, you will get a 15 percent step-up on the original gain basis. If you invest prior to Dec. 31, 2021, and hold for five years you will get a 10 percent step-up on the original gain basis. You do not need to hold the investment for 10 years to receive these benefits. That said, holding for 10 years will also result in a 100% step-up in the QOF investment itself, meaning you would not have any capital gains tax due on the capital invested in the QOF (e.g., your gains on your original capital gains would be tax-free). Depending on the structure of the QOF and the underlying investment, it is possible to recapitalize the investment during the 10-year hold, resulting in being able to take money out prior to the five-, seven- and 10-year hold periods while maintaining the ability to receive the benefits. This is a complex topic that should be discussed with a tax accountant/attorney, however.

  • Peter McNeil

    Peter McNeil

    Comprehensive Financial Solutions and Tax
    May 08, 2019

    There are two tax benefits. One, you defer the gain on any capital gains till Dec. 31, 2019, or the date you sell your Opportunity Zone investment. If you hold for five years, only 90 percent of deferred gain is due. If you hold for seven years, 85 percent of gain is due. In either case, if the investment made money, you pay tax on the gain. Second, the other benefit is that the entire gain on the Opportunity Zone investment becomes tax-free if held for 10 years. You still pay the deferred tax in 2026, but the gain on new investment is tax-free.

  • Paul Wassgren

    Paul Wassgren

    DLA Piper
    May 08, 2019

    After 5 years, you get a 10 percent step-up in basis, and after seven years, an additional 5 percent (for a total of 15 percent). The 10-year benefit applies to the appreciation in value of the Qualified Opportunity Fund investment.

  • Ed Mofrad

    Ed Mofrad

    Mofrad Financial Solutions
    May 08, 2019

    Yes; what else if not your money?

  • Phil Jelsma

    Phil Jelsma

    Crosbie Gliner Schiffman Southard & Swanson (CGS3)
    May 08, 2019

    You need to hold the QOF interest for at least 10 years.

  • DISCLAIMER: 

    the information found on this website is intended to be general information; it is not legal or financial advice. Specific legal or financial advice can only be given by a licensed professional with full knowledge of all the facts and circumstances of your particular situation. You should seek consultation with legal and financial experts prior to participating in any aspect relating to Opportunity Zones. Posting a question on this website does not create an attorney-client relationship. All questions you post will be available to the public; do not include confidential information in your question.