When a 1031 like-kind exchange is the better option than the new Qualified Opportunity Zone ("QOZ"
Miguel A. Palma
Tax Strategist specializing in Wealth Creation & Strategic Planning for Business Owners & High Net Worth Individuals ?? Help Small Biz Owners ↑ cash flow 33% & ↓ taxes $37K-$875K+/Yr ?? Message me for a Free Assessment
Investors in high-tax states that have not adopted the QOZ program (i.e., California) should consider a Section 1031 transaction rather than a Qualified Opportunity Fund "QOF") reinvestment if the assets involved are 100 percent real estate. That will also defer the California state tax. This is even more important if the investor is older or in poor health since the real estate will generally get fully “stepped up” to fair market value upon death in a 1031 transaction, which is not the case with a QOF.
QOZ (upside) Liquidity and 20% deduction
A significant difference between 1031 and QOF investing is that only the capital gains portion (all or just a percentage) of the transaction needs to be reinvested, whereas a 1031 requires all proceeds (and possibly debt amounts) to be reinvested or matched. So a QOF strategy can provide your client with immediate tax-free liquidity to the extent of the investment’s tax basis.
The QOF may Qualify For The 199A QBI Deduction
What is the 199a deduction?
199A allows taxpayers to deduction up to 20% of qualified business income (QBI) from a domestic business operated as a sole proprietorship or through a partnership, S corporation, trust, or estate. The Sec. 199A deduction can be taken by individuals and by some estates and trusts.
Who qualifies for Section 199a deduction?
Individuals and some trusts and estates with QBI, qualified REIT dividends or qualified PTP income may qualify for the deduction.
Qualified business income includes sole proprietorship profits, real estate investor rental income (if your real estate investing rises to the level of a trade or business), and the shareholder and partner “profit allocations” reported on the K-1s that S corporations and partnerships send their owners. Need help with Section 199A or other tax issues?
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5 年That's a great post... for a tax professional I guess.?? If a person can understand this they are ready to take the CPA exam I guess."Qualified Opportunity Fund Qualified Opportunity Zone #1031 exchange vs QOF or QOZ". Maybe you can post something that helps to understand a thing or two. Might eventually result in a client or two. Just saying.