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Under what circumstances can a property owner contribute a property to a QOF or QOZB in exchange for equity?

What should be considered in this kind of transaction to reap the maximum tax benefit?


Answers
  • Peter McNeil
    September 18, 2019

    The contribution of property into the fund will only create a basis in the fund of the current tax basis, not the market value. No gain is recognized. This may not be a qualified contribution if the contributor has no other capital gains. If the property is sold to the fund, a gain could be recognized and the gain could be invested in the fund as a qualified investment. This will work as long as the total interest in the fund is less than 20%. Otherwise the related party rules will apply and the investment will be determined non qualified for tax benefits.

  • Maria De Los Angeles Rivera
    September 14, 2019

    The second sets of regulations allow the contribution of property to a fund in an amount equal to the gain to be deferred. Special considerations apply to determining basis of the interest. You will need to review whether the related party rules apply to this type of transaction.

  • Erik Kodesch
    September 11, 2019

    Can always contribute. However, the property will be part of the 30% allowed unqualified property for a QOZB. If that is a problem, leasing the property may be an option, subject to related property leasing rules.

  • Matthew Rappaport
    September 10, 2019

    A property owner can make a qualifying deferral of capital gain through a contribution of property to a QOF. A contribution of property to a QOZB is invalid for tax benefits under the statute and proposed regulations. Note that if the property contributed has built-in gain, the contribution will be treated as a mixed investment, and the QOF interest will only be partially eligible for QOZ tax benefits.

  • Brad Cohen
    September 09, 2019

    Several. 20% or less of the equity or, if acquired post-2017, then no restriction.