Any questions about optimal fund structure to achieve your goals can now be answered. This is after the IRS and Treasury have released the final regul
Any questions about optimal fund structure to achieve your goals can now be answered. This is after the IRS and Treasury have released the final regulations concerning the Opportunity Zone program. With this, you can now judge the opportunity fund structure that’s ideal for your goals. Here are answers to some of your questions;
What’s the distinction between a direct and indirect investment?
Quality Opportunity Fund (QQF) is a fund that self-guarantees that about 90% of its resources are Qualified Opportunity Zone Property (QQZP). The QQZP comprises direct interests in Qualified Opportunity Zone Business Property (QQZBP) or indirect investments in Qualified Opportunity Zone Businesses (QQZBs) that own QOZBP.
What is qualified opportunity zone business property?
With any type you choose, a QQF is supposed to have an essential investment in QOZBP. This is defined as a tangible property used in trading or business to satisfy the following three tests;
- Original use test: the first usage of the property should be generously improved by the QOF, or the property should begin in the Qualified Opportunity Zone with the QOF.
- Purchase Test: the QOF acquired the property after buying from a random party after Dec. 31, 2017.
- Used in QOZ during holding period test: considerably all of the utilization of such property by the QOF should be in a QO zone during much all of its waiting time.
How much of the funds’ assets are required to be QOZBP?
If you don’t want your QOF assets to be penalized at the QOF level, ensure that 90% of them are Qualified Opportunity Zone Property.
For the direct investment structure, 90% of the QOF’s assets are supposed to be QOZBP, while for the indirect structure, 70% of the QOZB’s tangible property is required. It’s essential that you note, with direct investments, if you miss the 90%, you will have a penalty, but with indirect investments lacking the 70% test could mean that 100% of the qualified opportunity fund’s real estate or assets are unqualified.
The indirect structure has the lower bar percentage-wise and tests the QOZB’s tangle property. Thus, it allows more liberty in the composition of the business assets. Meanwhile, the direct structure tests the QOF’s total assets.
How much time is allowed to deploy capital?
After every six months, the QOF 90% test is measured. However, there is a special rule to determine the QOF’s initial date. Money that a QOF has on a test date is not competent as a 90% qualified asset. Additionally, contributions received within six months of a testing date are allowed if only some conditions are achieved.
Are there any stipulations on the production of business income?
QOZB derives 50% of gross income from the active business employing an indirect investment structure. Here are three safe harbors you must satisfy;
- Half of the gross pay must be in a QOZ created by the material property, management, and operational functions.
- At least half of compensation paid to workers and self-employed entities is identified with administrations acted in a QOZ.
- Considerably half of the administrations performed dependent on hours worked by representatives and self-employed entities are acted in a QOZ.
These are among your many questions. But you should note that the regulations placed on the QOFs are flexible.