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QUALIFIED OPPORTUNITY ZONE
POTENTIAL TAX BENEFITS
AVAILABLE TO A QOZ INVESTOR
Qualified Opportunity Zone legislation offers QOZ investors a powerful potential combination of tax incentives, including deferral of capital gains taxes, a step-up in basis and tax-free growth. Prior to December 31, 2026 (the "Investment Cutoff Date"), if an investor sells any asset (not limited to a real estate asset) that generates a capital gain and invests an amount equal to that gain (or a lesser amount} in a QOZ within 180 days thereof, the taxpayer could receive the following benefits:
DEFERRAL
of the taxes owed on the initial capital gain.
REDUCTION
of that initial capital gain by 10 percent if the QOZ investment is held for five years.
ELIMINATION
of capital gain taxes from realized appreciation in the QOZ, provided the investor's holding period is 10 years or more.
QOZ INVESTMENT TIMELINE
THREE ELEMENTS OF TAX BENEFITS:
HELD FOR 5 YEARS
2021
-Investment in QOZ
-Asset sale - generating capital gain
2022
2023
-Deferred zero basis capital gain stepped up 10%
2024
2025
-Deferred zero basis capital gain stepped up 10%
HELD FOR 10 YEARS
2026
-Capital gains taxes due on the portion of the deferred capital gain not previously stepped up
2027
2028
2029
-Basis in QOZ investment stepped up to fair market value
-Forgiveness of capital gains taxes from QOZ asset appreciation
2030
2031
TAX BENEFITS COMPARISON CHART:
ASSUMPTIONS:
$1,000,000
• Capital Gain Proceeds from Sale
• Long-Term Capital Gains Tax Rate (Federal+ ACA)
23.8%
• State Tax
4.0%
• Traditional Portfolio (simple annual return)
9.0%
• QOZ (simple annual return)
9.0%
TRADITIONAL INVESTMENT VS. QOZ INVESTMENT
Capital Gain
2019 Taxes Owed on Gain
Capital for Reinvestment
TRADITIONAL TAXABLE INVESTMENT
2018
$1,000,000
$(278,000)
$722,000
QOZ INVESTMENT
2018
$1,000,000
$0
$1,000,000
Taxes Deferred
2026
2026
Investment Worth
Pay Taxes on Deferred Gain x 0.85
Taxes Due
$1,438,630
$0
$0
$1,992,563
$850,000
$(236,300)
Deferred gain after 15% step-up
2029
Investment Worth
Sell Investment
Sale Proceeds
Taxes Due
$1,863,068
$1,863,068
$(317,217)
2029
$2,580,426
$2,580,426
$0
$1,545,851
$2,580,426
Total Taxes Paid
Ending Value Net of Taxes
$(595,217),
$1,545,851
$(236,300)
$2,344,126
DIFFERENCE WITH QOF $798,275
*This illustration does not represent any particular QOZ investment. It is merely a hypothetical illustration based on the assumptions listed to show the potential tax benefits of investing in a QOF investment. The tax rates and returns used in the assumptions of this example may vary greatly and should not be construed as any results you would achieve in a QOZ investment. This information should not be construed as tax advice. Investors should consult their own tax advisors to determine their individual benefits in a QOZ investment. Potential cash flows/returns are not guaranteed and could be lower than anticipated.
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