QOZs and Tax Loss Harvesting

It’s the time of year when many investors and their advisors are heads down looking for opportunities for tax-loss harvesting, which ultimately reduces your tax bill by selling investments to generate a capital loss in order to offset capital gains.

If tax-loss harvesting is challenging this year because you want to keep your securities or don’t have enough loss positions (one can only hope!), then Qualified Opportunity Zone (QOZ) investments present an attractive alternative. With QOZs, you put your capital gains back to work, defer taxes owed on them, and avoid any taxes on future QOZ investments.

Passed as part of the Tax Cuts and Jobs Act of 2017, QOZs are land tracts designated by the U.S. Treasury Department and Internal Revenue Service to incentivize private investment in distressed communities. The QOZ legislation created tax breaks for investors who make qualified long-term investments that have the potential to promote economic growth in these zones.

In simplest terms, QOZs offer investors a combination of tax deferral and tax avoidance. The two main principals are:

  • Deferring of current capital gains tax owed until 2026
  • No tax on the growth of the QOZ investment if held for 10 years

As you can see, a QOZ investment delays any current capital gains taxes owned until 2026 (potentially longer if proposed legislation is enacted), and for investments in a QOZ fund, no tax is ever owed on those gains if held for at least 10 years. For investors who are looking for an option for their capital gains beyond tax-loss harvesting, QOZs are well worth exploring.

Learn more about Cresset Real Estate Partners: https://cressetpartners.com/real-estate.

For more on QOZs, learn how to defer taxes when selling your business: https://cressetpartners.com/news/how-to-defer-taxes-when-selling-a-business-what-to-know-about-qoz-investments.