36 OPPORTUNITY ZONE MAGAZINE | VOLUME 2 • ISSUE 1
COMBINING QUALIFIED SMALL BUSINESS STOCK
WITH OPPORTUNITY ZONES
By Phil Jelsma
Joining forces of the two tax incentives of QSBS and OZ can create a powerful tool for investors to drive investment capital into distressed communities while earning significant tax benefits .
Recently there has been a discussion of combining two
distinct tax advantage provisions , the deferral or exclusion of capital gains on the sale of qualified small business stock ( QSBS ) with the benefits of Opportunity Zone investing . In general , the OZ rules allow investors to avoid capital gains from the sale or real estate or businesses located in Qualified Opportunity Zones if invested for at least ten years and defer the tax liability on capital gains invested in the OZs . Put together , these two incentives create a powerful incentive to invest capital in low income communities identified as Qualified Opportunity Zones and obtain significant tax benefits . To understand how these two provisions can work together , each one must be examined separately : the exclusion of capital gain under Section 1202 for QSBS , the deferral of gain under Section 1045 , and the benefits associated with Qualified Opportunity Funds .
SECTION 1202 CAPITAL GAINS RULES FOR QUALIFIED SMALL BUSINESS STOCK
Although it has been around from a number of years , the benefits associated with Qualified Small Business Stock only really became relevant to most investors when President Obama lifted gains
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