Investor Tax Relief for Qualified Opportunity Funds due to COVID-19
As COVID-19 continues to affect businesses and markets alike, the IRS released Notice 2020-39 to provide relief for qualified opportunity funds (QOFs) and respective investors. These changes include reinvestment and safe harbor extensions, created with the intent to encourage investing in the wake of potential financial distress from the global pandemic. The IRS updated the QOF FAQ with current guidance that includes these changes.
We expect further guidance from the IRS about QOFs and investment standards and we have outlined the first of these changes here.
180-Day Investment Requirement for QOF Investors
Typically, investors that sell property as a gain would have 180 days to reinvest those funds in a QOF to defer that gain. New guidance allows investors to reinvest funds until December 31, 2020 and defer that gain if the 180 day reinvestment period otherwise would end on or between April 1st and December 31st. The relief is automatically applied.
Additionally, QOFs that received QOF stock or partnership interests from an eligible sale have an additional 12 months in which to reinvest those amounts.
30- Month Substantial Improvement Suspension
The IRS notice suspends the 30-month beginning April 1, 2020 and ending December 31, 2020. This relief allows taxpayers to remain committed to a QOF while honoring CDC and government safety guidelines.
Qualifying as a QOF
Due to COVID-19, the act of holding less than 90 percent of the assets in a qualified opportunity zone property from April 1, 2020 to December 31, 2020 will not result in a penalty and may still qualify as an eligible QOF.
Working Capital Safe Harbor
With so many retailers and other key businesses closed, the 31-month working capital safe harbor regulation has been extended up to an This extension helps to alleviate the pressure to find a contractor or business that is open and operating at full capacity.
Additional Insights on QOFs
Aldrich is Here to Help
The entire Aldrich team is monitoring the QOF updates and guidance. If you have any questions about the QOFs, reach out to your Aldrich Advisor.
This article was written with the most current information as of June 15, 2020.
Meet the Author
Partner - Real Estate
Jonathan McGuire, CPA
Aldrich CPAs + Advisors LLP
Jonathan McGuire has over eight years of experience providing strategic tax planning and compliance expertise to private middle-market clients. He has a deep focus as a real estate accountant, working with investors, developers, realtors, property managers, and other professional service providers in real estate. He works with a wide range of property types ranging from... Read more Jonathan McGuire, CPA
- Real estate
- Partnership taxation
- Tax planning and compliance
- Certified Public Accountant
- Repair regulations
- Qualified Opportunity Zones
- Qualified Opportunity Funds