How to Defer Taxes on Capital Gains for a Decade

Share on facebook
Share on google
Share on twitter
Share on linkedin
An opportunity for investors to defer tax on capital gains, while participating in turning around distressed neighborhoods and communities around the country

ww2 fixed wing

And do something meaningful with your profits.

When most of us talk about the Tax Cuts and Jobs Act signed into law in December of last year, we concentrate on the benefits we derive from personal and corporate tax rate reductions. And with good reason: they favorably impact more than 90 percent of taxpayers.

But buried deep inside the bill is an opportunity for investors to defer tax on capital gains, while participating in turning around distressed neighborhoods and communities around the country.

The specific section of the law is Tax Cuts and Jobs Act§1400Z – Opportunity Zones. This new provision designates certain low-income areas throughout the country as Opportunity Zones . . . places in dire need of economic activity and job creation.

Currently, there are almost nine thousand Opportunity Zones nationwide, as well as in territories like Puerto Rico. And more can be designated in the future by state governments.

In our state of Florida, there are currently 426 Opportunity Zones, with 18 practically in our backyard here in Polk County.

What’s in it for you?

Let’s say you have successful investments—cryptocurrency, real estate, stocks, anything that has appreciated in value since you bought it a year or more ago. When you cash out of that investment, you’ll be subject to capital gains tax. But according to §1400Z, you can instead invest those gains within 180 days in a fund that will, in turn, invest in Opportunity Zones; these entities are referred to as Qualified Opportunity Funds by the IRS.

When you invest your profit in an Opportunity Fund, the tax on that original capital gain will be deferred for as long as you hold the new investment, or for 10-years . . . whichever one comes first.

If you hold the Opportunity Fund investment for five years, a 10 percent permanent reduction in the deferred gain will be allowed. If you hold it for two more years, an additional 5% permanent reduction in the deferred gain (15 percent total) will be allowed.

And, if you hold the investment for the full 10-year period, not only will you receive the 15 percent permanent reduction on your deferred gain, you also won’t have to pay any tax on the appreciation of your Opportunity Fund investment when you cash out.

You read that right: if the Opportunity Fund does well, you can cash out and not pay any capital gains tax on that profit.

And worst case, if the Opportunity Fund generates losses, you may be able to claim those losses.

It’s definitely a discussion every successful investor should have with his or her CPA or tax advisor.

Here are some other basics you should know:

  1. A Qualified Opportunity Fund is set up as either a corporation or partnership for investing in eligible property located in an Opportunity Zone
  2. You don’t need to live in an Opportunity Zone to invest in it
  3. To become certified as a Qualified Opportunity Fund, an investor/investor entity self certifies. There is no IRS approval.
  4. To self-certify, a taxpayer completes a form available from the IRS and attaches it to the taxpayer’s federal income tax return for the taxable year
  5. You make an election to defer the gain—in whole or in part—when filing the federal income tax return for the year in which the tax on the gain would be do
0/5 (0 Reviews)

Prepare Now for Natural Disasters

Disaster proofing your personal and business financial and tax records is as important as stocking up on batteries and bottled water.

Read More

Not Going to College Isn’t a Good Excuse for Not Succeeding

Some of the best known and most successful entrepreneurs had little or no time in a college classroom.

Read More

When the Corporate You Needs to Say No to the Personal You

One of the hardest things many small business owners and entrepreneurs need to overcome is the urge to “let the company pay for it.” Whatever the” it” is.

Read More

Business Expenses to Track This Year for Tax Deductions

Legitimate tax write-offs are critical to growing your business and maximizing your company’s bottom line.

Read More
Share on facebook
Share on twitter
Share on linkedin

Leave a Comment

About Us

Since 1981, we bring measurable results to business owners who want to preserve wealth, boost operating capital, minimize their tax burden, and soar in today’s challenging business environment.

Recent Posts

Sign up for our Newsletter

Scroll to Top
%d bloggers like this: