Austin Partner Doug Jones, a member of the Tax Planning & Controversy Practice Group, was quoted in the article, Investing In Opportunity Zone Funds? Expert Warn of Hidden Financial Risks, published on Bisnow.com (Dallas-Ft. Worth edition). The article examines the second set of regulations regarding opportunity zones, which were released in April. The new rules allow an exit from qualified funds with a chance to take advantage of tax benefits through asset sales in addition to the previously allowed equity sales.
Doug explained that if investors do an equity sale, everything in the fund is required to go with the sale, but that asset sales allow a purchaser to acquire individual fund assets. While asset sales give investors and funds another exit strategy, it isn’t always the best choice.
“Even though the asset sales are allowable and you can do them, it’s a good idea in some situations to be able to preserve the ability to do an equity sale even though we have these asset rules,” Doug said.
It comes down to having a blend of qualifying and non-qualifying properties within a fund. Asset sales can be less than optimal in some situations “because the way the second set of regs reads is that only capital gains from the sale of qualifying properties [are] eligible for people to take advantage of the 10-year-hold benefit, and these funds are not going to have 100% qualifying properties,” Doug continued.
He also noted his surprise that many investors remain unaware that 2026 is a “do-or-die” deadline for paying taxes regardless of whether any asset or equity sales have taken place at that point.
Doug pointed out that it’s important for people to remember that the “gains people are rolling over that they get a [tax] deferral on, that deferral ends in 2026 regardless of whether or not there is some sort of liquidity or exit….investors going into a fund have to be sure that they are in a position to pay those taxes in 2026 when the bill comes due.”
To read the article, click here.