Large Stock Gains and Qualified Opportunity Zone Investing
Written by Nathan Kuhn February 12, 2021
While it wasn’t obvious at the time, it’s now clear that the COVID-19-induced sell-off this past spring created one of the best stock buying opportunities of our lifetime—the S&P 500 is up nearly 65% from the low and the Nasdaq is up roughly 80% over the same time. The tectonic shift in our economy also set some stocks skyrocketing; as of January 31, 2021, Zoom is up 235%, Moderna is up 712%, and Tesla is up nearly 1,000%!
Investing Substantial Stock Gains in a QOZ
The rapid recovery of the market has left many investors in the fortunate position of having substantial realized and unrealized capital gains. Many investors have taken gains and many, from a risk/planning perspective, are also holding positions with large unrealized gains that may become a larger—perhaps too large—allocation to a sector or security. For investors in either scenario with large realized or unrealized gains, a Qualified Opportunity Zone investment is probably a worthwhile consideration.
Investing in Qualified Opportunity Zones allows investors to:
- Invest capital gains and defer the taxes owed on those gains until 2026, at which point investors receive a 10% step-up in basis
- Then, after holding the QOZ for 10 years, any capital gains potentially realized in the QOZ are tax-free
QOZ investing has many compelling components, and the tax incentives including the deferral of gain certainly being one of them. The run-up of the stock market has created an opportunity for investors to investigate QOZ investing and consider if this may be a suitable solution for their financial situation. Generally, investors have 180 days from the date of their sale to invest gains in a Qualified Opportunity Zone.
Important QOZ Considerations
It is very important to note that a decision to invest gains into a Qualified Opportunity Zone need not be made prior to selling an asset. Additionally, the IRS has twice extended the time frame for QOZ investing due to the COVID-19 crisis.
In early 2021, the IRS issued a notice that investors whose last day of the 180-day investment period fell on or after April 1, 2020, and before March 31, 2021, will see their 180-day window extended to March 31, 2021. This signifies that investor gains dating back to October 2019 can now be invested in Qualified Opportunity Zone Funds.
What’s Next
If you have gains from the sale of stock or other assets, including the sale of a business, or you’re simply interested in learning more about Qualified Opportunity Zones, we are available and happy to set up a time to discuss them with you. We can also review the Qualified Opportunity Funds currently available to our clients. Simply give us a call at (224) 245-5281 or schedule a meeting. As with all tax related decisions we suggest consulting with your accountant regarding your personal situation.
1. Source: stockcharts.com
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The information herein has been prepared for educational purposes only and does not constitute an offer to purchase or sell securitized real estate investments. Such offers are only made through the sponsors Private Placement Memorandum (PPM) which is solely available to accredited investors and accredited entities. DST 1031 properties are only available to accredited investors (typically have a $1 million net worth excluding primary residence or $200,000 income individually/$300,000 jointly of the last two years, and reasonably expects the same for the current year) and accredited entities only. If you are unsure if you are an accredited investor and/or an accredited entity please verify with your CPA and Attorney. There are risks associated with investing in real estate and Delaware Statutory Trust (DST) properties including, but not limited to, loss of entire investment principal, declining market values, tenant vacancies and illiquidity. Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated. Because investor’s situations and objectives vary this information is not intended to indicate suitability for any particular investor. This material is not to be interpreted as tax or legal advice. Please speak with your own tax and legal advisors for advice/guidance regarding your particular situation.
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