Origin: The TCJA added Code Subchapter Z, §§ 1400Z-1 and 1400Z-2, effective December 22, 2017. With the recent Code updates for personal income, the first of which was to the Code effective as of January 1, 2022, and the subsequent update to the Code effective as of January 1, 2024, this is now a personal income tax expenditure.
Under Subchapter Z, Taxpayers may elect to defer gain from a sale or exchange of property to an unrelated party occurring on or before December 31, 2026, by reinvesting that gain within 180 days of the sale or exchange in a "qualified opportunity fund." The deferred gain must be included in income upon the earlier of (i) the tax year in which the taxpayer's investment in the qualified opportunity fund is sold or exchanged, and (ii) December 31, 2026. In either case, the amount of gain includable is the excess of: the amount of gain excluded or the fair market value of the investment in the qualified opportunity fund, whichever is less, over the taxpayer's basis in the investment. If a qualified opportunity fund investment is held for at least five or seven years by the date of deferred gain inclusion, the taxpayer's basis in the investment is increased by 10% or 15%, respectively. Qualified opportunity fund investments held for at least 10 years can be sold tax-free.
1.108
1.108 Deferral of Federal Gain Invested in Qualified Opportunity Zones
Tax Type
Tax Expenditure
Item Number
Item Name
Description
Origin
FY2023
FY2024
FY2025
FY2026
FY2027
Personal Income Tax
Deferrals of Gross Income
1.108
Deferral of Federal Gain Invested in Qualified Opportunity Zones
The TCJA added Code Subchapter Z, <a href="https://www.law.cornell.edu/uscode/text/26/1400Z-1" target="_blank">§§ 1400Z-1</a> and <a href="https://www.law.cornell.edu/uscode/text/26/1400Z-2" target="_blank">1400Z-2</a>, effective December 22, 2017. With the recent Code updates for personal income, the first of which was to the Code effective as of January 1, 2022, and the subsequent update to the Code effective as of January 1, 2024, this is now a personal income tax expenditure.<BR><BR>Under Subchapter Z, Taxpayers may elect to defer gain from a sale or exchange of property to an unrelated party occurring on or before December 31, 2026, by reinvesting that gain within 180 days of the sale or exchange in a "qualified opportunity fund." The deferred gain must be included in income upon the earlier of (i) the tax year in which the taxpayer's investment in the qualified opportunity fund is sold or exchanged, and (ii) December 31, 2026. In either case, the amount of gain includable is the excess of: the amount of gain excluded or the fair market value of the investment in the qualified opportunity fund, whichever is less, over the taxpayer's basis in the investment. If a qualified opportunity fund investment is held for at least five or seven years by the date of deferred gain inclusion, the taxpayer's basis in the investment is increased by 10% or 15%, respectively. Qualified opportunity fund investments held for at least 10 years can be sold tax-free.
IRC <a href="https://www.law.cornell.edu/uscode/text/26/1400Z-1" target="_blank">§1400Z-1</a>; <a href="https://www.law.cornell.edu/uscode/text/26/1400Z-2" target="_blank">1400Z-2</a>
18.7
16.2
8.5
5.8
5.8
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