Purchasing a building in an Opportunity Zone (OZ) can provide significant tax benefits under the Opportunity Zone program, created by the 2017 Tax Cuts and Jobs Act. Here's a breakdown of the tax benefits and timeline:

Tax Benefits:

1. Deferral of Capital Gains:

   • If you invest capital gains into a Qualified Opportunity Fund (QOF), you can defer paying taxes on those gains until December 31, 2026 or when you sell your investment, whichever comes first.
   • Example: If you sold stock or real estate and reinvested the gains into a QOF, you'd defer the tax on the original gain.

2. Reduction of Capital Gains Taxes:

   • If you keep your investment in the QOF for at least five years, you qualify for a 10% step-up in basis on the original deferred capital gains.
   • This means 10% of your original gains won’t be taxed when the deferral period ends.

3. Tax-Free Growth on the New Investment:

   • If you hold the QOF investment for at least 10 years, you won’t owe capital gains taxes on any appreciation of the investment in the Opportunity Zone.
   • This applies only to the new gains from the QOF investment, not the deferred original gains.

Timeline for Key Dates:

1. Day 1 - Reinvestment of Capital Gains:

   • You must reinvest your capital gains into a QOF within 180 days of realizing the gain to qualify for benefits.

2. 5-Year Hold:

   • To qualify for the 10% reduction in deferred capital gains taxes, you must hold your QOF investment for at least five years before December 31, 2026.
   • Key Deadline: To maximize the 10% reduction, you must invest by December 31, 2021, as this allows five full years before the 2026 deadline. (This deadline has passed, so new investments won't qualify for this specific benefit.)

3. 10-Year Hold:

   • If you hold the investment for at least 10 years, you can exclude gains from the appreciation of the QOF investment entirely.
   • There’s no set end date for this benefit, as the program allows tax-free growth for investments held until 2047.

4. December 31, 2026:

   • Taxes on the deferred original capital gains must be paid. If the investment hasn’t been sold, the gain is still recognized and taxed.

Example Scenario:

• You sell stock on January 1, 2025, realizing $500,000 in capital gains.
• You reinvest that $500,000 into a QOF within 180 days, on June 1, 2025.
• On December 31, 2026, you pay taxes on the deferred gain, but with a 10% step-up in basis (if eligible).
• You hold the investment for 10 years, selling it in June 2035. If the investment appreciates to $1 million, the additional $500,000 gain is tax-free.

Requirements and Considerations:

1. Substantial Improvement Rule:

   • If purchasing a building, you must significantly improve it within 30 months. The investment in improvements must at least equal the purchase price of the building (excluding land value).

2. Qualified Opportunity Fund (QOF):

   • Your investment must be made through a QOF, which is an investment vehicle specifically designed to invest in OZ properties.

3. Location & Compliance:

   • Ensure the property is within a designated Opportunity Zone, and verify that your plans comply with IRS and local regulations.

4. Professional Advice:

   • Consult with tax professionals and attorneys familiar with Opportunity Zones to ensure compliance and to structure your investment effectively.

Would you like more details on setting up a QOF or the substantial improvement requirements?