This is the ONLY situation where you can get bailed out after failing to do tax planning for a big capital gain and it’s pretty sweet

Qualified Opportunity Zones (QOZs) are starting their 2.0 version next year.

Quick overview if you’re new to them:

• Realization of capital gains from biz sale, stock sale, RE sale, etc. can be deferred 5 years
• The deferred gain is reduced by 10% at the 5-year mark
• If you stay invested for 10yrs the investment can receive a step up in basis (including avoiding any depreciation recapture)

One quirk that I’m calling the “bailout” is that you normally have 180 days to invest following your capital gain event, but if the gain is coming as a pass through on a K-1 you might be able to start your 180 day clock on the entity’s tax return deadline of 3/15.

I just talked to someone this week that had a $5m+ capital gain earlier in the year and has been scrambling to find ways to reduce the tax bill.

Because the gain is coming through a K1, he may be able to defer the recognition of the gain out to 2032 if he invests in a QOZ within 180 days of 3/15/27.

The 5yr tax deferral window gives you time to invest what is essentially an interest free loan from the government.

Just imagine if you could invest that in a way that harvests capital losses…

Like the kind of losses that would offset the gain that is recognized 5 years later…

QOZ 2.0 + tax-aware long/short = 😮