Qualified Opportunity Fund Glossary
If you're interested in investing in Qualified Opportunity Funds (QOFs), it's important to have a solid understanding of the terminology used in this field. This webpage is designed to provide you with a comprehensive glossary of QOF terms that you'll likely encounter as you explore this exciting investment opportunity.
As you explore the world of Qualified Opportunity Funds, you may come across a number of terms that are unfamiliar to you. This webpage will provide you with clear, concise definitions of these terms, as well as insights into how they relate to QOF investing. Whether you're a seasoned investor or just starting out, our QOF glossary is an invaluable resource for anyone interested in this exciting and potentially lucrative investment opportunity.
So, whether you're interested in learning more about Opportunity Zones, understanding the tax benefits of investing in QOFs, or simply looking to expand your investment portfolio, this webpage on Qualified Opportunity Fund Glossary Terms is the perfect place to start.
10-Year Holding Period
The period of time during which an investment in a QOF must be held to qualify for maximum tax benefits.
180-Day Investment Period
The period of time during which capital gains must be invested in a QOF to qualify for tax benefits.
Acquisition Date
The date on which a QOF acquires a qualified opportunity zone asset.
Annual Assessment Period
A period during which a QOF must determine whether it is meeting the substantially-all test.
Capital Gain Tax
Capital Gain Tax refers to the tax imposed on the profit realized from the sale of an asset that has increased in value over time. In the context of a 1031 exchange, a capital gain tax would apply to the difference between the sale price of the original property and its adjusted basis (i.e., the original cost plus any capital improvements made during ownership).
However, if the property owner uses the proceeds from the sale of the original property to acquire a like-kind replacement property through a 1031 exchange, they may be able to defer paying capital gain taxes on the sale of the original property until the sale of the replacement property. This allows them to reinvest the full sale proceeds into the new property, thus maximizing their investment potential.
De Minimis Exception
A provision that allows a QOF to disregard small amounts of non-qualifying assets when calculating compliance with the substantially-all test.
Debt Investment
An investment in which the investor loans money to the entity in which they are investing.
Deferred Capital Gains
Capital gains that are not immediately taxed but are instead deferred until a later date.
Depreciation
The decrease in value of an asset over time, used for tax purposes.
Dividend
A payment made by a corporation to its shareholders.
Eligible Gain
Capital gains that can be deferred through investment in a QOF.
Equity Investment
An investment in which the investor acquires an ownership interest in the entity in which they are investing.
Financial Statements
Documents that show the financial position and performance of a business, including income statements and balance sheets.
General Partner
A partner in a partnership who has management responsibility and is personally liable for the partnership's debts.
Holding Period
The period of time during which an investment is held.
Intangible Property
Property that does not have a physical presence, such as patents, trademarks, or copyrights.
Interest
The cost of borrowing money, paid by the borrower to the lender.
Internal Revenue Code (IRC)
The body of law that governs federal taxation in the United States.
Investor
An individual or entity that invests in a QOF.
Investor Capital
The amount of money invested by an investor in a QOF.
Investor Return
The amount of profit or return on investment earned by an investor in a QOF.
Limited Liability
The legal protection that limits the personal liability from debts and obligations of an investor to the amount of their investment.
Limited Liability Company (LLC)
A type of business structure that combines the liability protection of a corporation with the tax pass-through treatment of a partnership.
Limited Partner
A partner in a partnership who contributes capital but has limited liability and no management responsibility.
Limited Partnership
A type of partnership in which there are one or more general partners who manage the business and are personally liable for its debts, and one or more limited partners who contribute capital but have limited liability.
Net Asset Value (NAV)
The value of a fund's assets minus its liabilities, divided by the number of shares outstanding.
Nonqualified Financial Property (NQFP)
Financial assets such as stocks, bonds, and other securities that do not qualify as qualified opportunity zone property.
Non-Qualified Opportunity Zone Property
Property that does not qualify for tax benefits when located in an opportunity zone.
Offering Memorandum
A legal document that provides information to potential investors about a QOF.
Operating Agreement
A document that outlines the rights and responsibilities of the members of an LLC or partnership.
Operating Expenses
The costs associated with operating a property, such as utilities, maintenance, and management fees.
Opportunity Zone (OZ)
A designated geographic area that is eligible for investment through a QOF.
Opportunity Zone Business (OZB)
A business that operates in an opportunity zone and meets certain criteria for investment by a QOF.
Original Use
The first use of a property in an opportunity zone, either as new construction or as the renovation of a vacant property.
Original Use Commencement Date
The date on which a property is first placed in service in an opportunity zone.
Pre-Existing Business
A business that was operating in an opportunity zone before it was designated as an opportunity zone.
Preferred Return
A guaranteed minimum return on investment for certain investors in a QOF.
Private Placement
The sale of trust certificates or other securities to a limited number of accredited investors, without registration with the SEC.
Pro Rata
In proportion to an investor's ownership percentage.
Qualified Opportunity Fund (QOF)
A type of investment vehicle designed to encourage economic development and investment in low-income communities.
Qualified Opportunity Zone (QOZ) Business
A business that is located in an opportunity zone and meets certain requirements for investment by a QOF.
Qualified Opportunity Zone (QOZ) Business Property
Tangible property used in the active conduct of a trade or business located in an opportunity zone.
Qualified Opportunity Zone (QOZ) Fund
An investment vehicle designed to invest in qualified opportunity zone property.
Qualified Opportunity Zone (QOZ) Partnership
A partnership that invests in an opportunity zone and meets certain criteria for investment by a QOF.
Qualified Opportunity Zone (QOZ) Stock
Stock in a corporation that meets certain criteria for investment by a QOF.
Qualified Opportunity Zone Property (QOZP)
Any tangible property located in an opportunity zone, including real estate and equipment.
Related Party
A person or entity that is related to a QOF, such as a shareholder, partner, or family member.
Return On Investment (ROI)
The amount of profit or return earned on an investment, expressed as a percentage of the initial investment.
Shareholder
An owner of stock in a corporation.
Step-Up Basis
An increase in the cost basis of an asset, which reduces the amount of capital gains tax owed when the asset is sold.
Subscription Agreement
A legal document that outlines the terms of an investor's investment in a QOF.
Substantial Improvement
Improvements made to a property that increase its value by at least the amount of the original purchase price.
Substantially-All Test
A requirement that at least 90% of a QOF's assets be invested in qualified opportunity zone property.
Syndication
The pooling of resources from multiple investors to invest in a QOF.
Targeted Community
A community that is eligible for investment through a QOF.
Tax Benefits
The advantages, such as tax deferral or reduction, that result from investing in a QOF.
Tax Credit
A dollar-for-dollar reduction in a taxpayer's tax liability.
Tax Incentive
A benefit offered by the government to encourage a certain behavior, such as investment in an opportunity zone.
Tax Liability
The amount of tax owed by a taxpayer to the government.
Taxable Year
The period of time during which a taxpayer calculates their income and tax liability.
Taxpayer
An individual or entity that is subject to taxation.
Underwriting
The process of evaluating the risk and potential of an investment.
Valuation
The process of determining the value of an asset or investment.
Working Capital Safe Harbor
A provision that allows businesses in opportunity zones to hold cash or other liquid assets for a certain period of time without violating the requirement that they have a certain percentage of their assets invested in qualified opportunity zone property.
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