Qualified Opportunity Zone Alternative for a Failed 1031 Exchange

If your 1031 exchange fails, you could explore a quality opportunity zone investment to defer tax recognition until 12-26-2026 (with 10% potentially forgiven).

A Qualified Opportunity Zone is not as good as 1031 exchange because the deferral isn’t indefinite. However, it can be a good choice if your exchange fails and you have no other options.

Questions to Ask

• How much debt did they have?

• How low was their Current adjusted basis?

If you don’t have MOB (MTG over Basis), then QOZ fund may work because they must reinvest the amount of the gain (which can exceed the amount of proceeds).

Contact CPEC1031

Contact CPEC1031, LLC today to learn more about 1031 exchanges and qualified opportunity zones. Our qualified intermediaries have two decades of experience facilitating exchanges of real property. Contact us today at our downtown Minneapolis office to get started!

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2020 Copyright Jeffrey R. Peterson All Rights Reserved

Tax Consequences of Investing Boot in an Opportunity Zone

What are the tax consequences of investing boot in an opportunity zone? Specifically, what happens if you do not meet the entire equity rollover portion and invest a portion or all of the boot in an asset located in an opportunity zone.

Working with a CPA

It depends on a complicated review of the numbers. Your CPA will need to compute the exact amount of gains recognized from (1) potential debt relief, (2) receipt of boot and (3) from potential buy-down in value; and then make sure that you invest enough cash into an OZ fund within the applicable time deadline for QOZ.

If you had high debt and low basis on the relinquished property then it may be necessary to add more cash in addition to the remaining exchange funds to the QOZ investment to cover the gain. This is referred to as MOB or mortgage over basis, and can make it more challenging to offset the debt using the qualified opportunity zone fund technique.

As always, I recommend that you discuss this possibility with your CPA and also your financial advisor.

Some qualified opportunity zone investments are regulated as Securities, and you must us write certain “accredited investor” standards in order to participate in them.

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2020 Copyright Jeffrey R. Peterson All Rights Reserved