What is a Qualified Opportunity Fund ( QOF )?
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Notice 2019-42 can be found at IRS.gov/IRB/2019-29_IRB#NOT-2019-42. Qualified opportunity fund (QOF). A QOF is an investment vehicle organized as a corporation or a partnership for the purpose of investing in QOZ property (other than another QOF).
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Facts about opportunity zones
The Tax Cuts and Jobs Act included changes for businesses and individuals. One of these is the creation of the Opportunity Zones tax incentive, an economic development tool that allows people to invest in distressed areas. This incentive’s purpose is to spur economic development and job creation in distressed communities by providing tax benefits to investors. Low income communities and certain contiguous communities qualify as Opportunity Zones if a state, the District of Columbia or a U.S. territory nominated them for that designation and the U.S. Treasury certified that nomination. Following the nomination process, 8,764 communities in all 50 states, the District of Columbia and five U.S. territories were certified as Qualified Opportunity Zones (QOZs). Congress later designated each low-income community in Puerto Rico as a QOZ effective Dec. 22, 2017. The list of each QOZ can be found in IRS Notices 2018-48 PDF and 2019-42 PDF. Further, a visual map of the census tracts designated as QOZs may be found at Opportunity Zones Resources.
Special Rules for Capital Gains Invested in QOF
If you have a capital gain, you can invest that gain into a QOF and elect to defer part or all of the gain that is otherwise includible in income. The gain is deferred until you sell or exchange the investment or December 21, 2026, whichever is earlier. You may also be able to permanently exclude gain from the sale or exchange of an investment in a QOF if the investment is held for at least 10 years. For information about what types of gains entitle you to elect these special rules, see the Instructions for Schedule D for your tax return. Report the eligible gain on the form and in the manner otherwise instructed. See the Instructions for Form 8949 on how to report your election to defer eligible gains invested in a QOF.