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What needs to be written into a purchase agreement when selling a property where the gains may be rolled into a QOF?

If I am an investor in a property that is already in an OZ (property A) and sell another property (property B), can I reinvest the gains from property B into an OZF that develops Property A and be eligible for the tax benefits?


Answers
  • Valerie Grunduski
    November 25, 2019

    It depends. In your example, Property A would need to meet the requirements to qualify, including date of purchase, related party restrictions, etc. There is nothing specific to include the purchase agreement for sale of Property B, however. As long as the gain on Property B would be taxed as a capital gain and be reportable on your tax return, you simply elect on your return to reduce your capital gain via investment into a QOF.

  • Maria De Los Angeles Rivera
    November 17, 2019

    Eligible capital gains that were derived from a sale to unrelated (the 20% rule) may be invested in a QOF for the deferral benefits. A QOF will need to buy property A from you and you cannot exceed the 20% ownership in the fund. This transaction will need careful structuring and compliance with all tests.

  • Peter McNeil
    November 12, 2019

    If you acquired property A after Dec. 31, 2017, you can create an LLC and move the asset into the fund. You should declare the LLC an Opportunity Zone Fund. Any investments you make from any capital gains, including from property B that are invested within 180 days of the sale, will qualify for the tax benefits. Note you get more than 180 days from a pass-through entity or 1231 gains. There are no special rules for the purchase and sale agreement related to OZ funds.

  • Erik Kodesch
    November 08, 2019

    Yes, as long as the investment otherwise qualifies. There may be issues because you already own Property A, but a big enough investment generally should overcome these. Nothing is needed in the Property B purchase agreement.

  • Matthew Rappaport
    November 05, 2019

    There is nothing special that needs to go into a purchase and sale agreement for the resulting capital gains to be eligible for the OZ program.