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Qualified Opportunity Zone (QOZ) program is often associated with real estate investments but it is also designed for venture capital investors to defer and reduce their capital gain tax burden by reinvesting, through Qualified Opportunity Funds (QOF), in startups meeting the definition of a “Qualified Opportunity Zone Business.” (QOZB)
By reinvesting capital gains into a QOF within 180 days after the gains are realized, investors can defer recognition of those gains until as late as December 31, 2026.
Venture capital QOF portfolio may contain any startups designated as QOZB in any attractive business area.
Additionally, if a taxpayer holds his or her investment in a QOF for at least 10 years, then any gain on that investment between purchase and sale will escape federal income taxation altogether.
For example, blockchain enthusiasts may be holding Bitcoin that appreciated in their hands (and Bitcoin is considered property for the purposes of the federal capital gain tax). Such investors may be incentivized to sell the cryptocurrency to reinvest the sales proceeds into a QOF holding shares in a blockchain startup of the investor’s interest that operates in a QOZ located, for example, in NYC or San Francisco area. With proper legal and tax structuring, taxation of realized capital gains from the sale of Bitcoin will be deferred and/or reduced as per QOZB tax guidelines outlined below.
Gains from sale of all kinds of capital assets can be reinvested in startups and VC QOFs located in QOZs, including:
- Stocks, bonds, and other investments;
- Art and other collectibles;
- Automobiles, aircraft, and equipment;
- Bitcoin and other digital assets;
- Intellectual property and other intangible assets; and
- Real estate.