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Are you about to experience the payday you have always dreamed about? Are you going to be lucky and have a large capital gain resulting from the sale of your company, stock, or real estate investment? You now have a way to defer paying the tax on the gain by reinvesting the amount of the gain into a new type of investment as a result of the 2017 Tax Cut and Jobs Act. By investing in funds that invest in designated “Opportunity Zones” you have the potential to benefit from a new tax incentive trifecta. Essentially this new provision allows you to invest the amount of realized capital gain within 180 days of the asset sale and benefit three different ways including:

• By moving realized capital gains into a qualified Opportunity Fund within 180 days of the asset sale, investors can defer paying capital gains taxes on the resulting gain until December 31, 2026 or until they sell their Opportunity Fund investment whichever occurs first.

• If an investor holds their Opportunity Fund investment for at least 5 years prior to December 31, 2026, they can reduce their deferred capital gains tax liability by 10% through a step-up in tax basis. If the investor holds their Opportunity Fund investment for an additional 2 years, they can reduce their deferred capital gains liability by another 5%. That means by holding an Opportunity Fund investment for 7 years prior to December 31, 2026; an investor can reduce their tax liability on the deferred capital gains invested in the Opportunity Fund by 15%.

• If the investor continues to hold their Opportunity Fund investment for another 3 years (10 years total), they can expect to pay no capital gain taxes on the ultimate sale of the investment over and above the original deferred gain. This is due to Opportunity Fund gains earned from Opportunity Zone investments qualifying for permanent exclusion from the capital gains tax if the investment is held for at least 10 years.

For example, if you sell an investment that would otherwise generate a capital gain of $100,000 you would have to pay taxes of potentially $23,800 resulting in only having $76,200 of the gain remaining to invest in other assets. On the hand, if you invest the $100,000 in a qualified Opportunity Zone Investment Fund you defer paying taxes on the original gain and have the full $100,000 invested. Assuming you hold the new investment for at least ten years you never pay tax on $15,000 (15%) of the original gain in 2026 and any growth of the Opportunity Fund investment value will never be taxed. A pure triple tax benefit; temporary tax deferral, effective 15% step-up in basis on the original gain, and elimination of the tax on the new investment fund gain.

If you are about to realize a large capital gain please contact your tax and financial advisory team to learn more about ways to take advantage of this opportunity. Keep in mind there is a time clock running on the ability to take advantage of the benefits.

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The material contained herein is for informational purposes only and does not constitute tax advice.  You should consult with your own tax advisor regarding your personal tax situation.  PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. The material contained herein is not intended as investment advice and does not address or account for individual investor circumstances.  Investment decisions should always be made based on the client's specific financial needs, goals and objectives, time horizon and risk tolerance.  The statements contained herein are based solely upon the opinions of Telemus Capital, LLC.  All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice. Information was obtained from third party sources, which we believe to be reliable, but not guaranteed.

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