Does your Qualified Opportunity Zone Fund meet the 6 Month asset test?
Number five on your Top Ten things not to do with your Qualified Opportunity Zone Fund and/or Business is not preparing for your six month asset test. We are referencing back to our handy dandy qualified Opportunity Zone Cheat Sheet. As you’ll recall, you must start with a capital gain. Your gain needs to go into a Qualified Opportunity Zone Fund within 180 days. You must be aware that your Qualified Opportunity Zone Fund has a 90% asset test every six months. This test is determined by averaging the last day of the first six month period and the last day of the fund’s taxable year.
What that means is, depending on when you put your money into the fund, you’ll have between six months to a year to invest that money in Qualified Opportunity Zone Property. Here’s an example. If you put your money in January 1st, your first testing date is going to be July 30th. But, if proceeds are held in cash or cash equivalent, then you get to disregard any contributions that came in during those previous six months. This makes it so that that test doesn’t happen and it kicks you to December 31st. So, if your money came in between January 1st and June 30th, your first asset test is going to be December 31st.
To reiterate, if the money comes in on June 30th, that’s going to be six months. If the money comes in on January 1st, that’s going to be a year. And then similarly, if your funds come in between July 1st and December 31st, your first test is going to be on December 31st, because you won’t have a first six month period. But, any funds that came in during the previous six months, you’re going to be able to exclude. That means, it will push your test to the following June 30th.
If you are approaching any type of June 30th or December 31st deadline, make sure that you have liquid cash you can pull from your shop, down to your QOZB. Please be aware, if you put in anything other than cash, make sure that it’s liquid when it goes down to the QOZB, so that you can hit that six month asset test.
Similarly, if you loan it out to yourself or to a third party, you want to make sure that it’s liquid. You also need to ensure it’s back in your fund’s account, so that you can run that money from the fund into the QOZ prior to the June 30th test.
This doesn’t mean move your money from yourself back to the QOF and have it sitting in the account on June 30th. This means move it back on June 15th. That way you can move it down to the QOZB by June 30th. The reason for this is because as soon as you drop the cash down to the QOZB, you’ve met this 90% test. Now that you know what not to do and you want to learn more about what to do, download our Opportunity Zone Cheat Sheet or schedule a strategy call today. We also encourage you to sign up for the OZPros Compliance Bootcamp, where we answer questions just like this from 10:00am to 11:30am Eastern Time every Tuesday. We look forward to helping you do your Opportunity Zone deal correctly from the start.