Qualified Opportunity Fund (QOF)

Invest Smarter with a Qualified Opportunity Fund (QOF)

The Tax Cuts and Jobs Act of 2017 created the Qualified Opportunity Fund (QOF) program to stimulate long-term investments in underserved communities called Qualified Opportunity Zones (QOZs). In return, investors receive powerful tax incentives—particularly on capital gains.

Strand Tax & Accounting Services offers full bookkeeping and tax filing to ensure compliance with IRS regulations. As part of our service we perform and maintain the required semiannual documentation throughout the life of the fund.

Capital Gains Tax Rates (Current)

• Federal Long-Term Capital Gains: 20.0% (for assets held more than one year; income over $518,900)

• Net Investment Income Tax (NIIT): 3.8%

• Effective Total for FL Residents: 23.8%

Key Tax Benefits of a QOF Implementation for your business

• Tax Elimination: Hold your QOF investment for 10 or more years and eliminate capital gains tax on appreciation from that investment

Eligible Opportunity Zone Investments – Zone Map

• Qualified Opportunity Zone Business Property (QOZBP) – such as new construction or substantial improvement of real estate

• Qualified Opportunity Zone Business (QOZB) – operating businesses located within an Opportunity Zone

Requirements for Investors

• Must reinvest capital gains (not ordinary income) into a QOF

• Investment must be made within 180 days of realizing the gain

• The QOF must place at least 90% of its assets into qualifying Opportunity Zone property or businesses
  Investments may be made through 2047

Requirements for QOZ Businesses

To qualify, the business must meet ongoing IRS compliance standards:

• Location: Must operate within a designated Opportunity Zone

• Income Source Test: At least 50% of gross income must come from active operations within the zone

• Tangible Property Test: At least 70% of tangible assets must be located in the zone

• Use of Intangibles: At least 40% of intangible property (e.g., branding, IP) must be used in the zone

• Employee Presence: At least 50% of employee hours or compensation must be tied to work in the zone

• Active Business: Passive investment vehicles are not eligible

• Nonqualified Financial Property Limit: No more than 5% of assets may be held in non-operating investments

• Excluded Businesses: Certain businesses are excluded from qualification, such as:

  • Golf courses, country clubs, liquor stores, tanning salons, massage parlors, casinos, and hot tub facilities

• Substantial Improvement Rule: Used property must be substantially improved (i.e., the basis must be doubled within 30 months), unless it is new

Compliance Testing and Oversight

QOZBs must satisfy compliance on two specific testing dates each year:

1. The last day of the first 6-month period of the tax year

2. The last day of the tax year

Fund Structure: How It Works

• BLUE SKY QOF FUND LLC is our dedicated Qualified Opportunity Fund, structured as a partnership

• Investors contribute their capital gains to the fund

• The fund deploys those gains into a new QOZB or QOZBP

• Each investor will be appointed as the sole manager of their own newly created, manager-managed QOZB or QOZBP entity

Ready to Explore Your Opportunity?

Contact us today to learn how you can defer, reduce, or eliminate capital gains taxes while running your business.

Related links:
Qualified Opportunity Zone Map
Qualified Opportunity Fund IRS Law 26 CFR § 1.1400Z2(d)-1
Qualified Opportunity Fund IRS Regulations