Individuals who wish to defer or reduce capital gains taxes should act now if they wish to take advantage of tax incentives in advance of the Oct. 15 filing deadline.
Why You should invest in opportunity zones
Opportunity zone investing is an excellent tax planning strategy for three reasons.
- You can defer tax on capital gains until after December 31, 2026.
- There is an opportunity for a 10% reduction of the gain that is taxable if the investment is made by December 31, 2021 and held for at least 5 years.
- There is a permanent exclusion of tax on the appreciation of the investment in the opportunity zone if it is held for at least 10 years.
Now with the COVID-19 notice the IRS released in June 2020 there are more ways for taxpayers to benefit.
What qualifies as capital gains?
An investment in a Qualified Opportunity Zone fund, like the Caliber Tax Advantaged Opportunity Zone Fund, LP, must come from a capital gain. These can result from the sale of securities, real estate, businesses and other investments. Gains may come from a directly owned investment or through an investment that is reported on a K-1 from a partnership, LLC, S corporation, estate or trust. All types of capital gains can qualify, including short-term capital gains, long-term capital gains, Section 1231 gains, and Section 1250 gains.
deferring capital gains taxes: time is running out
A recent IRS notice (IRS Notice 2020-39) allows taxpayers with a capital gain that occurred on or after October 5, 2019 to defer the capital gain on their 2019 tax returns and invest the gain in a Qualified Opportunity Zone fund. If your 2019 capital gain came from a partnership or other pass-through investment reported to you on a K-1, you can go further back to any gains you incurred as of January 1, 2019, and invest those gains into a Qualified Opportunity Zone fund. For example, a stock sale that produced a gain directly to you, as a taxpayer, has to have occurred on or after October 5, 2019, for you to still invest it. On the contrary, if you sold a real estate project that was owned by an entity designated as a partnership, you can invest the capital gains associated with that sale even if the sale occurred on or after January 1, 2019. With only a few weeks to go before the extended tax deadline of October 15, 2020, those who have not already filed their tax returns must act fast to take advantage of this tax-saving opportunity.
Though many have already filed their 2019 tax returns, it’s not too late. If you had a capital gain on or after October 5th, you can still amend your 2019 tax returns to defer the capital gain. If the investment in the Qualified Opportunity Zone fund is complete and the amended tax return is filed by December 31, 2020, you will still qualify for the aforementioned tax benefits. Since the capital gain will now be deferred, the tax paid on the capital gain with the original 2019 federal tax return can be refunded on the amended return. Depending on the respective state tax laws, this could be an option for receiving a tax refund at the state level, as well.
Contact us to learn more about our four opportunity zone properties in Arizona and how you can defer and save on capital gains taxes.
The information contained herein is general in nature and is not intended, and should not be construed, as accounting, financial, investment, legal, or tax advice, or opinion, in each instance provided by Caliber or any of its affiliates, agents, or representatives. The reader is cautioned that this material may not be applicable to, or suitable for, the reader’s specific circumstances, desires, needs, and requires consideration of all applicable facts and circumstances. The reader understands and acknowledges that, prior to taking any action relating to this material, the reader (i) has been encouraged to rely upon the advice of the reader’s accounting, financial, investment, legal, and tax advisers with respect to the accounting, financial, investment, legal, tax, and other considerations relating to this material, (ii) is not relying upon Caliber or any of its affiliates, agents, employees, managers, members, or representatives for accounting, financial, investment, legal, tax, or business advice, and (iii) has sought independent accounting, financial, investment, legal, tax, and business advice relating to this material. Caliber, and each of its affiliates, agents, employees, managers, members, and representatives assumes no obligation to inform the reader of any change in the law or other factors that could affect the information contained herein.