The S199A is a new deduction for certain kinds of business owners, allowing owners a 20% deduction of income from their business ventures. Rental owners will be glad to find out that the IRS finally determined that this can include the business of rental properties.
The Tax Cuts and Jobs Act also created an alternative to the 1031 Exchange, and this investment opportunity/tax deferment is called Qualified Opportunity Fund (QOF). Unlike the 1031 Exchange, taxpayers may defer part (or all) their Capital Gain by investing in these Funds, which are invested by the fund in Qualified Opportunity Zones.
Right now there are over 8,700 Qualified Opportunity Zones (QOZ) throughout the U.S. Although these zones are located in “distressed communities,” many of these zones are in upcoming areas and already undergoing gentrification. I believe they are a pooled investment, similar to REIT's (Real Estate Investment Trusts).
The deferred proceeds from your Capital Gain must be reinvested in a QOF within 180 days from the date the gain is recognized. The deferred gain must be recognized on the date the QOF is sold, or December 31, 2026. The amount of basis in this investment can increase depending on the length of time the investment is held, lowering the amount taxable as Capital Gain, and increasing the amount of gain forgiven.
There are more rules and items to note about this investment opportunity and tax deferral vehicle. As of mid-August, California tax law does not recognize this tax deferral. If you have any questions or are looking for more information, I am happy to help!
Both capital gains tax and the interest rates have remained low this year, so it is still a very good time to buy or sell real estate. If you haven't done a Market Evaluation of your home or properties recently, the value may have gone up. If this interests you, I can prepare a free evaluation at your request.
If you have an issue or any tax-related question that I can help you with, please feel free to give me a call! The first consultation is free, and I welcome referrals. Wishing you a happy close to 2019, looking forward to 2020.