Q: If I have a capital gain of $50,000; do I need to invest the entire amount into a Qualified Opportunity Fund (QOF) to defer the gain?
A: No, you can invest a portion of the gain into a QOF. However, only the portion invested will be deferred.
Q: I have short-term and long-term capital gains. Am I only allowed to invest the long-term gain?
A: No, you can invest both short-term and long-term capital gains. The catch is that any gain recognized after the deferral from the investment of short-term gains will be recognized as short-term gains. You can also invest and defer capital gains from 1231 transactions.
Q: I want to create my own Qualified Opportunity Fund. Would I be able to set this up as a single-member LLC?
A: Unfortunately, no. A single-member LLC is a disregarded entity for Federal purposes. A QOF must be either a corporation or a partnership. A multi-member LLC would be an eligible entity.
Q: If I have a capital gain in 2019 that I invest into a Qualified Opportunity Fund, and then I have another capital gain in 2020 – am I able to invest the gain in 2020 into the same QOF?
A: Yes, but the gain in 2020 will be subject to its own holding period for the 5 and 7-year basis increases.
Q: I received a Schedule K-1 (from a calendar year-end entity) showing my share of the capital gains for an asset that was sold on January 1, 2018. Do I only have 180 days from January 1, 2018 to invest that amount into a QOF?
A: Since the gain is from a pass-thru entity, you have the option of either investing the capital amount from January 1, 2018 (the date of the sale) or December 31, 2018 (the year-end of the entity).