Property Contribution and Basis Issues in Pass-Through Opportunity Funds
Tax Mtg. Real Est. J., V. 34, p. 243, December 2018
20 Pages Posted: 13 Dec 2018
Date Written: December 4, 2018
Congress provided a bold new gain deferral and exclusion provision by creating qualified opportunity funds (QOFs) in new section 1400Z-2. Treasury has now published proposed regulations under section 1400Z-2. Those regulations provide some much needed guidance on basic issues related to section 1400Z-2, but they leave many questions unanswered. In particular, they do not address fundamental basis issues that arise with QOF pass-through entities. This article illustrates the need for guidance addressing loss allocations to QOF investors with zero-basis eligible-gain interests in a pass-through QOF, gain allocations to members with eligible-gain interests in a pass-through QOF, the effect section 1400Z-2 basis adjustments in QOF interests have on the basis of assets of a pass-through QOF, and the proper apportionment of tax items among mixed-fund investments in a pass-through QOF. The article also demonstrates that property owners who wish to contribute property to a QOF or qualified opportunity zone business (QOZB) must overcome significant technical hurdles to obtain the benefits of section 1400Z-2. The absence of favorable guidance in this area will likely dissuade many owners from contributing their property to a QOF or QOZB.
Keywords: qualified opportunity fund, QOF, section 1031, nonrecognition, gain deferral, gain exclusion
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