The 2017 Tax Cuts and Jobs Act created a new program for the establishment of “Qualified Opportunity Funds” (QOFs) to help attract capital to projects and businesses that are located in certain economically distressed communities, known as “Opportunity Zones.” By investing in QOFs, investors can achieve the following three significant tax benefits:
- The ability to defer short- or long-term taxable gain realized on the sale or disposition of property to an unrelated person until as late as December 31, 2026, if the gain is invested in a QOF within 180 days (or within 180 deemed days) of the property’s disposition.
- The elimination of up to 10% of the gain that has been reinvested in a QOF provided that a five-year holding period requirement is met.
- The potential elimination of tax on gain resulting from the subsequent appreciation in the value of a QOF, provided that the investment in the QOF is held for at least 10 years.
At Schiff Hardin, we have established a multidisciplinary team to work with clients creating and investing in QOFs and engaged in transactions involving assets in Qualified Opportunity Zones (QOZ). Our team includes a recognized thought leader in the QOZ landscape who is not merely a practitioner, but who has actively participated in the shaping of the QOZ Final Regulations both through his involvement in the comment letter process on behalf of various organizations and his testimony at hearings on the QOZ Proposed Regulations before the U.S. Department of Treasury.
We help our clients navigate the QOZ program by developing strategies to raise QOZ advantaged gain capital, creating tax compliant QOFs, and maximizing the value of QOZ assets, including through tiered holdings that involve one or more “QOZ Businesses” – which unlock additional, more flexible rules as compared to using structures that involve direct asset holdings at the QOF level. Our team combines its knowledge of the QOZ program and its requirements with a practical, commercial approach, and experience in real estate, private equity, fund formation and securities laws, to provide innovative and holistic advice to help our clients achieve their objectives – whether they are fund sponsors or investors. As recognized leaders in the private wealth arena, we regularly apply these principles to private clients and their family offices to bridge the gap between QOZs and private wealth.