Our best-selling explanation of restricted stock units, employee stock options, and other equity compensation is now available in a 2019 edition that includes explanation of how last year’s tax changes will affect strategies.more info
An extraordinary provision added by the Tax Cuts and Jobs Act makes it possible for taxpayers to defer almost any kind of capital gain and potentially secure additional tax benefits if they invest in a qualified opportunity fund. (Proposed regulations make exceptions for gain from section 1256 contracts or offsetting positions.) You need to make this election during the 180-day period beginning on the day you have the gain, and then show on your tax return that you elect to invoke this provision. Your gain, up to the amount you invest, will not be taxable that year, but instead will become taxable when you sell this investment, or on December 31, 2026, if the investment remains unsold on that date.
Depending on how long you hold this investment, some of that gain may disappear. After five years your basis is increased by 10% of the amount that was deferred, eliminating 10% of the gain from the original sale. Another 5% of that gain disappears if your holding period stretches to seven years. As a final kicker, reaching the ten-year milestone lets you avoid paying tax on any gain from an increase in the value of this investment during your holding period.
A qualified opportunity fund has to be at least 90% invested in properties and businesses in certain low-income areas or adjoining areas. That’s the underlying idea: to revitalize these areas by attracting investment dollars. Those dollars are not targeted to particular types of projects, however. Funds will pursue properties and businesses that provide the highest returns for their investors.
As written in the law, this tax benefit is available to all taxpayers. Anyone who has a capital gain of almost any kind can defer reporting the gain by investing in one of these funds. Yet as of this writing, these investments are available only to accredited investors—those who make over $200,000 per year (or $300,000 with their spouse), or have net worth, excluding their home, above $1,000,000. Members of the general public can’t buy in because the funds haven’t gone through the lengthy, expensive process of getting their offerings registered with the SEC. At least one firm has made an SEC filing that could lead it to become publicly traded as a qualified opportunity fund REIT, so this deferral benefit could eventually become available to all investors. For now, however, this extraordinary new tax benefit is reserved for the wealthy.
Missing the 60-day deadline to complete a rollover after receiving a distribution from a retirement plan or IRA can have painful consequences. There’s a simple solution, though, if you meet the requirements.
Reversing course, the Trump Administration announced today that the government shutdown will not prevent the IRS from sending income tax refunds to taxpayers. The first posting of this item mentioned that a question had been raised as to whether it is legal to do so. In a subsequent information release, the IRS says Congress directed the payment of all tax refunds through a permanent, indefinite appropriation, and that the Office of Management and Budget, which had previously directed the IRS not to pay refunds during a budget impasse has reviewed the law and concluded that it may so so.
The release also sets January 28 as the date it will begin processing returns.
In their words: irs information release
Have you heard that the Tax Cuts and Jobs Act repealed the alternative minimum tax (AMT)? Probably not, because the AMT survived. Yet it’s been whittled down to a shadow of its former self. For nearly all taxpayers, AMT repeal is a practical reality.
featured article: AMT Repeal, for Most
Note: This article kicks off a series on the profound changes made by the Tax Cuts and Jobs Act.