Do you have a Working Capital Safe Harbor Business Plan in writing when cash hits your QOZB in order to make your QOZB exempt from the non-qualified financial property test?
Number four on our list is a working capital safe harbor business plan. When creating your Opportunity Zone Fund and Business, referencing our handy dandy opportunity zone cheat sheet, you will take a capital gain and drop it down into your fund within 180 days. You have a six month asset test and you will need to drop your cash down into the Qualified Opportunity Zone Business in order to meet the six month asset test.
When your cash hits your QOZB, you need a 31 month Working Capital Safe Harbor Business Plan in writing that shows how you are going to substantially comply with, in order to make your QOZB exempt from the non-qualified financial property test. What this test states is that you can’t have more than 5% of your QOZB property be cash, cash equivalents, stocks, bonds, mutual funds, or annuity contracts. Simply put, the legislators were trying to make sure that you didn’t create a stock trading company or something similar.
What’s really important is that when you drop your cash down, you have this plan in writing. It sets forth, over the next 31 months, how you’re going to spend this cash. If you have this in place, you’re exempt from the 5% non-qualified financial property test. Keep in mind, there are other exclusions to that, such as working capital that you’re going to use in the business and reasonable amounts of that capital.
We can talk about specifics relating to the exclusions on a Strategy Call or on our OZPros Compliance Bootcamp. We’d be happy to talk with you about the specifics of your circumstances. Schedule your strategy, call us today or join the OZ Pros Compliance Bootcamp. At OZ Pros, we are really excited about helping people do opportunity zones and do them correctly.