Defining Partnership Interest in a Qualified Opportunity Zone Business
- Posted: April 18, 2019
- Posted by: Travis Lynk
- Last Reviewed: April 18, 2019
An individual investor cannot roll his untaxed capital gains into an Opportunity Zone property; he must first invest them with a Qualified Opportunity Fund to qualify for the capital gains tax incentives. The Qualified Opportunity Fund is the only recognized investment vehicle for investing in the Opportunity Zone program.
The Opportunity Zone program allows Qualified Opportunity Funds to make one of three types of investments to qualify for tax incentives: qualified Opportunity Zone business property, stock in a qualified Opportunity Zone business, or partnership interest in a qualified Opportunity Zone business.
The word “partnership” has a fairly elastic meaning in the business world, but when it comes to Opportunity Zone investments, the definition is quite clear.
In a typical limited business partnership, all partners share profits in a particular asset without risking personal assets outside the partnership interest. This principle also holds true for qualified Opportunity Zone partnerships. However, the Qualified Opportunity Fund, not the individual investor, holds the partnership interest in the Opportunity Zone business.
The definition of a Qualified Opportunity Zone partnership interest, according to the IRS, is “a domestic partnership interest acquired by the Qualified Opportunity Fund after December 31, 2017, solely in exchange for cash. As with corporations, when the partnership interest is issued, the partnership must be a qualified Opportunity Zone business and remain one during substantially all of the Qualified Opportunity Fund’s holding period of such interest.”
Investors should keep these other requirements in mind:
- The Qualified Opportunity Fund takes a limited partnership interest in a qualified Opportunity Zone business. The taxpayer’s role is limited to investing untaxed capital gains into a Qualified Opportunity Fund.
- IRS requirements for a qualified Opportunity Zone business stipulate that “substantially all” of the business’s tangible property is owned or leased by the Opportunity Zone business, and at least half its income is generated by operations within the Opportunity Zone.