As 2019 comes to a close, there is an important deadline approaching for opportunity zone investors. December 31, 2019 is the last day on which investors can make an investment in a qualified opportunity fund (“QOF”) and realize the maximum benefits of the program. A QOF is a partnership or corporation that invests in properties or businesses located in qualified opportunity zones. If you make the investment in a QOF within 180 days, capital gains that you otherwise would have recognized on your initial transaction will be deferred until December 31, 2026. The approaching deadline means that for those investments made in a QOF prior to year-end and held for seven years, investors will have the benefit of not paying tax on 15% of their deferred capital gains. For those who miss the deadline, QOF investors will still have the benefit of not paying tax on 10% of their deferred capital gains if they invest prior to December 31, 2021. After that, QOF investors will have the benefit of the tax deferral but will ultimately have to recognize all of the deferred capital gains without the benefit of any exclusion. It should be noted that Section 1231 capital gains or capital gains flowing through from a partnership are deemed to occur on December 31st, so if you anticipate having capital gains from these sources, you can fund your QOF investment on December 31st and get the maximum tax benefits.

If you are considering making an investment in a QOF but cannot do so before year-end, the program will continue to be available and will continue to offer significant tax benefits for years to come. While the 15% exclusion of deferred capital gains will not be available if your investment is made after December 31, 2019, the 10% benefit will be available for investments made before December 31, 2021, and you will still get the benefit of deferring the recognition of your capital gains. Further, the biggest benefit of the program comes on your exit from the QOF. If you hold your QOF interest for at least ten years, you will not recognize any gain when you sell your QOF interest. Under the current guidance, your QOF interest must be sold prior to January 1, 2048.