The QOZ program does not have a minimum required holding period for the deferral, but taxpayers can receive two increments of additional basis in a QO Fund investment. If the taxpayer holds the QO Fund investment for at least five years, the basis bonus is equal to 10 percent of the original gain deferred, which means only 90 percent of the deferred gain invested in a QO Fund would be subject to tax. If the taxpayer holds the QO Fund investment for at least seven years, the basis bonus is equal to 15 percent, leaving 85 percent of the original deferred gain subject to tax.
Taxpayers can exclude all of the post-acquisition gains in the QO Fund if they hold the property for 10 years. At that point, the taxpayer can elect, upon sale of the investment, to have a basis in the QO Fund investment equal to its fair market value. This results in no tax on the sale of the QO Fund investment, other than any rollover gains deemed recognized on Dec. 31, 2026.
EARLY BIRD GETS THE WORM
The QOZ program rewards those who invest early. Many of the benefits expire on Dec. 31, 2026, and QOZ areas lose their designations after Dec. 31, 2028. Making an investment in 2018 could result in significant tax savings, particularly if taxpayers can utilize the post-acquisition gain exclusion. A tax professional knowledgeable of the program’s LA-area opportunities can help taxpayers make the most of this program.
Paul Rosenkranz is a Lead Managing Director in the Los Angeles office of CBIZ MHM, LLC. He has more than 35 years of diversified tax and business consulting experience.