Happy Valley, OR asked in Real Estate Law and Tax Law for Oregon

Q: Can you avoid/ reduce capital gains tax from the sell of land by reinvesting atleast 75% of the profit into new land?

Land would be in a opportunity zone in oregon.

Sell of land is in oregon as well.

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2 Lawyer Answers
James L. Arrasmith
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  • Tax Law Lawyer
  • Sacramento, CA

A: Investing capital gains from the sale of property into an Opportunity Zone can provide tax benefits, but it does not automatically avoid capital gains tax. Here's some information about Opportunity Zones and capital gains:

1. Opportunity Zones: These are economically distressed areas where new investments may be eligible for preferential tax treatment under the Tax Cuts and Jobs Act of 2017.

2. Capital Gains Tax Deferral: If you reinvest capital gains into a Qualified Opportunity Fund (QOF) within 180 days of the sale, you can defer paying capital gains tax until December 31, 2026, or until you sell your QOF investment, whichever comes first.

3. Capital Gains Tax Reduction: If you hold your QOF investment for at least 5 years, you can reduce your deferred capital gains tax liability by 10%. If held for at least 7 years, the reduction increases to 15%.

4. Capital Gains Tax Elimination: If you hold your QOF investment for at least 10 years, you may be eligible to pay no capital gains tax on the appreciation of your QOF investment (not the original deferred gain).

However, there is no specific requirement to reinvest at least 75% of the profit to qualify for these benefits. The key is to reinvest the capital gains portion into a QOF within 180 days.

It's essential to note that the rules surrounding Opportunity Zones are complex, and not all investments in Opportunity Zones automatically qualify for these tax benefits. It's advisable to consult with a qualified tax professional or financial advisor to understand how these rules apply to your specific situation and to ensure compliance with IRS regulations.

Benjamin A. Goldburd
Benjamin A. Goldburd
  • Tax Law Lawyer
  • New York, NY

A: There are ways to avoid or reduce your capital gains from the sale of land. Commonly accepted methods are transactions involving a 1031 Exchange or investing the gain in Opportunity Zones. With a 1031 Exchange, you must use a Qualified Intermediary which holds the sale proceeds of the land, and then have the same “QI” purchase new land on your behalf with those proceeds. This allows for a no-tax event. However, if you only use 75% of the land proceeds the non-exchanged amount would be taxable. With an Opportunity Zone investment, you only need to invest the profit of the transaction, not the entire proceeds. With a “QOZ” you invest in a specific area designated Zones for this program, and this allows you to defer the tax you owe on the transaction for a number of years, you get a percentage deduction against the amount of tax you owe and then the subsequent sale of the QOZ investment can be tax-free. Be wary of States that do not conform to the Federal rules though, such as New York. The 25% that you did not invest would be taxable in the year earned

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