Are you considering a sale of a high value asset that you’ve held for a long time? Are you looking to sell your business and reinvest into a different market or area? There may be a way to defer and minimize the tax consequences of these transactions without having to meet the daunting task of finding a like-kind property, or using an intermediary, as is the case with like-kind exchanges that we have had to use for years.
Created under the Tax Cuts and Jobs Act, the new guidelines of Qualified Opportunity Zones were included to help encourage the investment in economically distressed areas across the country. The zones can be found in all 50 states, DC, and the US territories, so one could easily be right in your backyard.
You can defer paying taxes on the gains if you reinvest them into a qualified property or business within 180 days of the gain event. There is also a caveat that if the new investment is held for 5 or 7 years, you will receive an automatic increase in the basis of the new investment, further increasing the tax benefit of your original gain deferral.
Unfortunately, there is a time limit to how long the gain deferral can last. This deferral time limit will be either when the new investment is sold or December 31, 2026, whichever comes first. Recognizing that this would be incentive for investments to be liquidated prior to the December 31, 2026 cutoff, Congress decided to add the benefit that if the new investment was held for 10 years, any further appreciation in the fair market value of the investment after December 31, 2026, would be tax free, as long as it is ultimately sold prior to December 31, 2047.
Bottom line, this new taxpayer-friendly opportunity should be considered by anyone that may be looking to sell an asset, or business, and is considering reinvestment into a new opportunity.
To discuss if your circumstances would qualify, or for further insights and advice on how a Qualified Opportunity Zone transaction would be structured, please contact Larry Johnson at lbj@bspcpa.com or 716-854-5034 today.