Tax Blog/Blawg

2018 Capital Gain Deferral Opportunity through June 29, 2019

An important deadline is approaching on June 29, 2019 for taxpayers looking to defer 2018 capital gains by investing in a Qualified Opportunity Zone (“QOZ”).  Investments of capital gains in a Qualified Opportunity Fund (“QOF”) generally require the investments to be made within 180 days from the date(s) of sale giving rise to capital gain. However, the 180-day period is extended for capital gains earned through a partnership or pass-through entity.  This exception to the 180-day contribution rule for pass-through entities can also potentially salvage a deferral of gains from a failed like-kind exchange under section 1031 provided the failed exchange involved property owned by a pass-through entity. 

For capital gains earned from a pass-through entity in 2018, the 180-day period commences December 31, 2018, meaning that such gains can still qualify for deferral if they are contributed to a QOF by June 29, 2019.  Because the QOZ rules allow cash or cash equivalents to be held in a QOF for up to six months, taxpayers still contemplating a way to defer 2018 capital gains have the option to set up a QOF and figure out how to invest those funds in a QOZ thereafter. If it turns out thereafter that the funds are never invested in a qualifying QOZ business, taxpayers on extension for 2018 will simply file their Schedule D gains without claiming the deferral on Form 8949.  (Conversely, taxpayers who already filed their 2018 returns reporting capital gains who want to take advantage of the QOZ deferral opportunity by June 29th will have to amend their returns.)  On the other hand, taxpayers who follow through with qualifying investments in QOZ businesses will be able to defer their 2018 gains and potentially derive the other significant tax advantages of QOZ investments.

Two steps are required to take advantage of this opportunity.  Step one will require the immediate formation of a limited liability company with two or more members.  Step two will require setting up a bank account for the LLC into which the qualifying capital gain funds must be deposited by the deadline.

For more information and assistance, please immediately contact any member of Chamberlain’s Opportunity Zone team.