Are you rolling over a capital gain from a sale to a related party?
The final thing not to do with your Qualified Opportunity Zone transaction is do not try to roll over a capital gain from a sale to a related party.
Once again, we are referencing our handy dandy Opportunity Zone Cheat Sheet. You have to start with a capital gain from a sale to an unrelated party, and that gain has to go into your Qualified Opportunity Zone Fund within 180 days.
An example is you don’t want to take that hand turkey that you made in kindergarten and sell it to your mom for $1,000,000, because that would be a sale to a related party. You also don’t want to take land you own and sell it to your cousin, your brother, anyone in your family, a business partner, or anyone you have a business relationship with or plan to have a business relationship with. If that is the case, it will be treated as a related party transaction.
You also need to know that the related party thresholds are 20%. So, if you’re going to sell it into an entity and you’re going to have more than a 20% interest in that entity going forward, that’s going to be a related party transaction. That will make it an unqualified investment for purposes of 1400Z in the Qualified Opportunity Zone legislation. To reiterate, make sure you use a capital gain from a sale to an unrelated party and get it into your QOZF within 180 days.
Now that you know what not to do, find out what to do by downloading the Opportunity Zone Cheat Sheet from our website or by scheduling a Strategy Call so we can go over your Qualified Opportunity Zone strategy and answer all of your questions. We also encourage you to sign up for the OZPros Compliance Bootcamp, where we answer your Opportunity Zone questions every Tuesday from 10:00 to 11:30am Eastern Time. Our team is excited to help you do your Opportunity Zone deal correctly from the start.