Pro rata is a Latin term that means “in proportion.” Pro rata is often used to describe the allocation or distribution of funds or benefits in proportion to each investor’s stake or investment. The QOF is part of a U.S. tax incentive that was introduced to encourage long-term investments in low-income urban and rural communities nationwide. By investing in a QOF, investors can receive certain tax benefits, including deferral of capital gains tax.
For example, if a QOF receives profits, those profits might be distributed “pro rata” to its investors based on the amount each investor contributed to the fund. If one investor contributed 10% of the fund’s total assets and another contributed 20%, the first would receive 10% of the distributed profits and the second would receive 20%.
It’s important to always review specific fund agreements or consult with professionals for details, as the actual distributions and allocations can vary based on fund terms and structures.