Investors seeking to leverage Opportunity Zone incentives now have until March 31, 2021, to place capital gains realized, in some cases, as far back as January 1, 2019.
The Opportunity Zone program allows for investments to be made through 2026, but as part of Notice 2021-10, the IRS offered new relief to Opportunity Zone investors and Funds by extending the investment deadline for gains whose eligibility window had closed last year.
Any capital gains realized on or after October 4, 2019, and any partnership gains realized on or after January 1, 2019, still qualify for investment in an Opportunity Zone Fund until at least March 31, 2021.
This deadline extension recognizes the impact of the pandemic on the investment markets and enables more capital to be placed into Opportunity Zones Funds, like our currently active Fund III.
180 Day Investment Window
Typically investors have 180 days from the date they realize capital gains to invest them in an Opportunity Zone Fund. For example, without this extension, an investor who realized a $250K gain from the sale of stock on April 1, 2020, would have until September 28, 2020, (180 days) to place their investment in an Opportunity Zone Fund. That investment window has now been extended to March 31, 2021. This most recent notice further extends previously granted relief from IRS Notice 2020-39 and Notice 2020-23, from June and April of last year respectively.
Sample Capital Gains That Qualify:
Partnership Gains - Partnership gains realized anytime in 2019 are eligible for investment until March 31, 2021. Partners in a partnership, shareholders of an S corporation, beneficiaries of estates, and non-grantor trusts benefit from the extension.
Gains realized via partnership are most commonly realized at the end of the calendar year. Therefore, partnership gains start the 180 day investor clock on Dec 31 and remain eligible until Jun 28 of the following year. As a result, partnership gains from 2020 are also still currently eligible on their standard clock.
Commercial Real Estate Gains - 1231 net gains from 2019 receive additional time under this new notice. Beginning in 2020, 1231 gains do not need to be netted - you can realize a loss and invest a gain separately. Individual 1231 gains from 2020 are also eligible until at least March 31, 2021. Note: 1231 gains scenarios can be particularly complicated. We recommend that you talk to your tax advisor or CPA about your specific situation.
Unrecaptured Depreciation - Section 1250 gains realized on or after October 4, 2019 are eligible for investment until March 31, 2021. Otherwise, these gains are on their typical 180 day clock.
Individual Gains - Individual gains, including gains from the sale of stocks, bonds, futures, funds, and personal property dating back to October 4, 2019 are eligible for investment until March 31, 2021. Otherwise, these gains are on their typical 180 day clock.
Note on 1031 Exchanges - The transition from 1031 to OZ is extremely simple and maintains significant tax advantages. Investors can sell an existing property, put any portion of their capital gains into an OZ Fund, and extract the principal. Therefore, any gains from property sold on or after October 4, 2019, even if intended for an ultimately failed 1031 exchange, are still eligible for OZ incentives.
*Please note, there are unique circumstances for each investor. The information provided here is merely for reference purposes. Please consult your tax advisor or CPA for considerations specific to your situation.
How Will This Extension Benefit Investors?
Investors now have a larger window of opportunity to place gains in a QOF to leverage Opportunity Zone tax incentives. For example, investors that chose to realize gains during the stock market sell off in March of 2020 can still place these gains in an OZ Fund. This notice offers one last chance to re-invest those gains in a heavily tax advantaged vehicle.
How Will This Extension Benefit Communities?
Encouraging and incentivizing investors to place gains in Opportunity Zone Funds will help ensure a more equitable economic recovery across the nation. More than $75 Billion has already been invested via the Opportunity Zone program. This capital will help provide workforce housing, affordable multi-family housing, and the development of small businesses that will help support sustainable growth in underserved communities across the nation.
To learn more about how to leverage Opportunity Zone incentives and placing gains before the extended March 31st deadline contact a representative of the Four Points Funding Team.