What are the tax consequences of investing boot in an opportunity zone? Specifically, what happens if you do not meet the entire equity rollover portion and invest a portion or all of the boot in an asset located in an opportunity zone.
Working with a CPA
It depends on a complicated review of the numbers. Your CPA will need to compute the exact amount of gains recognized from (1) potential debt relief, (2) receipt of boot and (3) from potential buy-down in value; and then make sure that you invest enough cash into an OZ fund within the applicable time deadline for QOZ.
If you had high debt and low basis on the relinquished property then it may be necessary to add more cash in addition to the remaining exchange funds to the QOZ investment to cover the gain. This is referred to as MOB or mortgage over basis, and can make it more challenging to offset the debt using the qualified opportunity zone fund technique.
As always, I recommend that you discuss this possibility with your CPA and also your financial advisor.
Some qualified opportunity zone investments are regulated as Securities, and you must us write certain “accredited investor” standards in order to participate in them.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
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