IRS Extends Deadline For Investing in Qualified Opportunity Funds

Due to COVID-19, the Internal Revenue Service has issued a notice that provides certain taxpayers an extended time to invest their capital gains into Qualified Opportunity Funds (QOFs). QOFs are long-term investments in economically distressed communities chosen by the state and certified by the Treasury Department. Investing in QOFs is worth exploring for those faced with hefty tax payments as the result of capital gains, such as the sale of a home or business that significantly appreciated in value.
Previous to this IRS notice, investors had 180 days from the date they sustained sizable capital gains to reinvest the money into a Qualified Opportunity Fund. The IRS has now extended that period through the end of 2020. For example, if your 180-day period ended on April 30th, you would have been given an additional eight months to make such an investment.
Contributing to a QOF as a long-term investment provides you significant tax advantages. If you keep the investment for five years, the IRS will exclude from taxation 10 percent of the initial deferred gains you invested. Furthermore, you will become exempt from taxes on the fund’s appreciation if you hold onto your QOF investment for at least 10 years.
There are certain things to bear in mind if you are considering such an investment. For one, the QOF must invest virtually all of its funds into qualifying properties located in designated low-income communities known as opportunity zones. Therefore, you want assurance that the QOF you are considering will invest your money properly.
Keep in mind also that this is a long-term strategy, will tie up your money for an extended period of time, and involves significant expenses, such as sales commissions and managing dealer fees. To ensure you make the right decision for your situation, we recommend you work with an accountant or tax professional to assist you with tax planning, as well as your decision making. For those of you who are clients of ours, we offer complimentary tax planning advice year-round.
Professional Tax Services is a locally owned provider serving over 3,500 local residents and businesses. For more information call 661-259-1967 or visit www.protaxservices.com. Through their complimentary EZ2 Thrive program, they provide unlimited free tax planning advice to their clients.