Hidden inside the Tax Cuts and Jobs Act is a potentially significant investment tool for deferring and reducing capital gain called Qualified Opportunity Funds. These funds are part of a new tax incentive program designed to direct resources to low-income communities, known as Qualified Opportunity Zones. The program will allow investors with unrealized capital gains to receive additional tax benefits for investing in these funds.
We understand that this opportunity is not right for everyone, and we at MGA do not believe in a one-size-fits-all approach to our clients’ needs. However, for some, this may be a potentially reasonable opportunity to take advantage of.
We are here to help you better understand the new tax laws and, ultimately, to help you grow your business and personal wealth.
What tax incentives can this investment vehicle provide?
Investing in Opportunity Funds can provide the following three tax incentives:
- Deferring of capital gain
- Potential reduction of the amount of gain realized through a basis adjustment
- Potential permanent exclusion of gain on the appreciation for the interest in a Qualified Opportunity Fund
In addition, there is no limit on the amount of money that can be invested in Qualified Opportunity Funds.
Our mixed thoughts
We believe this could be a potential opportunity for clients who have non-1031 capital gains in order to defer and reduce their tax burden based on the tax incentives outlined above.
However, this needs to be balanced with a very careful vetting of the specific investment opportunities and where within the Qualified Opportunity Zones these properties are located. Reduced tax rates rarely make up enough of a return on their own to justify a marginally profitable investment. So, as the saying goes, “buyer beware.”
We are here to help assess your particular situation
As we previously mentioned, we understand that this potential tax incentive may not be a good fit for all. We are here to evaluate your unique situation and give you our honest, unbiased thoughts.
Interested in learning more? Don’t hesitate to reach out to us today.