Max Hansen

Are Opportunity Zones a Tax Deferral Alternative to 1031 Exchanges?

With the passage of the Tax Cuts & Jobs Act (TCJA) in December 2017, we saw the elimination of Section 1031 exchanges for all types of property except real property. Included within the TCJA is Section 1400Z-2 which established an incentive for investing in Opportunity Zones (O-Zones). Recently, I have spoken with a number of taxpayers who have heard about Opportunity Zones and want to know if they are a viable alternative to a 1031 exchange. My answer is usually “it depends.” Here, I provide an overview of opportunity zones and their differences from 1031 exchanges.

Non-Safe Harbor Parking Arrangements for 1031 Exchanges

Accruit performs many safe harbor reverse exchanges (also known as parking arrangements) for taxpayers. The safe harbor transactions fit within the parameters of the safe harbor created in September 2000 by Revenue Procedure 2000-37 and governs those transactions in which the property is parked no longer than 180 days. However, there are instances in which, for a number of reasons, the replacement property must be parked for longer than 180 days. Common examples are those in which the relinquished property will take longer to market and sell than 180 days or in which construction of improvements are required on the replacement property.
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