26 U.S.C. § 1400Z-2 — Special rules for capital gains invested

Page 2498 TITLE 26—INTERNAL REVENUE CODE § 1400Z–2 AMENDMENTS 2018—Subsec. (b)(3). Pub. L. 115–123, § 41115(a), added par. (3). Subsec. (d)(1). Pub. L. 115–123, § 41115(b), inserted ‘‘and subsection (b)(3)’’ after ‘‘paragraph (2)’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE Section effective on Dec. 22, 2017, see section 13823(d) of Pub. L. 115–97, set out as an Effective Date of 2017 Amendment note under section 1016 of this title. § 1400Z–2. Special rules for capital gains invested in opportunity zones (a) In general (1) Treatment of gains In the case of gain from the sale to, or ex- change with, an unrelated person of any prop- erty held by the taxpayer, at the election of the taxpayer— (A) gross income for the taxable year shall not include so much of such gain as does not exceed the aggregate amount invested by the taxpayer in a qualified opportunity fund during the 180-day period beginning on the date of such sale or exchange, (B) the amount of gain excluded by sub- paragraph (A) shall be included in gross in- come as provided by subsection (b), and (C) subsection (c) shall apply. (2) Election No election may be made under paragraph (1)— (A) with respect to a sale or exchange if an election previously made with respect to such sale or exchange is in effect, or (B) with respect to any sale or exchange after December 31, 2026. (b) Deferral of gain invested in opportunity zone property (1) Year of inclusion Gain to which subsection (a)(1)(B) applies shall be included in income in the taxable year which includes the earlier of— (A) the date on which such investment is sold or exchanged, or (B) December 31, 2026. (2) Amount includible (A) In general The amount of gain included in gross in- come under subsection (a)(1)(A) shall be the excess of— (i) the lesser of the amount of gain ex- cluded under paragraph (1) or the fair mar- ket value of the investment as determined as of the date described in paragraph (1), over (ii) the taxpayer’s basis in the invest- ment. (B) Determination of basis (i) In general Except as otherwise provided in this clause or subsection (c), the taxpayer’s basis in the investment shall be zero. (ii) Increase for gain recognized under sub- section (a)(1)(B) The basis in the investment shall be in- creased by the amount of gain recognized by reason of subsection (a)(1)(B) with re- spect to such property. (iii) Investments held for 5 years In the case of any investment held for at least 5 years, the basis of such investment shall be increased by an amount equal to 10 percent of the amount of gain deferred by reason of subsection (a)(1)(A). (iv) Investments held for 7 years In the case of any investment held by the taxpayer for at least 7 years, in addi- tion to any adjustment made under clause (iii), the basis of such property shall be in- creased by an amount equal to 5 percent of the amount of gain deferred by reason of subsection (a)(1)(A). (c) Special rule for investments held for at least 10 years In the case of any investment held by the tax- payer for at least 10 years and with respect to which the taxpayer makes an election under this clause, the basis of such property shall be equal to the fair market value of such invest- ment on the date that the investment is sold or exchanged. (d) Qualified opportunity fund For purposes of this section— (1) In general The term ‘‘qualified opportunity fund’’ means any investment vehicle which is orga- nized as a corporation or a partnership for the purpose of investing in qualified opportunity zone property (other than another qualified opportunity fund) that holds at least 90 per- cent of its assets in qualified opportunity zone property, determined by the average of the percentage of qualified opportunity zone prop- erty held in the fund as measured— (A) on the last day of the first 6-month pe- riod of the taxable year of the fund, and (B) on the last day of the taxable year of the fund. (2) Qualified opportunity zone property (A) In general The term ‘‘qualified opportunity zone property’’ means property which is— (i) qualified opportunity zone stock, (ii) qualified opportunity zone partner- ship interest, or (iii) qualified opportunity zone business property. (B) Qualified opportunity zone stock (i) In general Except as provided in clause (ii), the term ‘‘qualified opportunity zone stock’’ means any stock in a domestic corporation if— (I) such stock is acquired by the quali- fied opportunity fund after December 31, 2017, at its original issue (directly or through an underwriter) from the cor- poration solely in exchange for cash, (II) as of the time such stock was issued, such corporation was a qualified opportunity zone business (or, in the case of a new corporation, such corpora- Page 2499 TITLE 26—INTERNAL REVENUE CODE § 1400Z–2 1 So in original. This subsection does not contain a paragraph (8). tion was being organized for purposes of being a qualified opportunity zone busi- ness), and (III) during substantially all of the qualified opportunity fund’s holding pe- riod for such stock, such corporation qualified as a qualified opportunity zone business. (ii) Redemptions A rule similar to the rule of section 1202(c)(3) shall apply for purposes of this paragraph. (C) Qualified opportunity zone partnership interest The term ‘‘qualified opportunity zone partnership interest’’ means any capital or profits interest in a domestic partnership if— (i) such interest is acquired by the quali- fied opportunity fund after December 31, 2017, from the partnership solely in ex- change for cash, (ii) as of the time such interest was ac- quired, such partnership was a qualified opportunity zone business (or, in the case of a new partnership, such partnership was being organized for purposes of being a qualified opportunity zone business), and (iii) during substantially all of the quali- fied opportunity fund’s holding period for such interest, such partnership qualified as a qualified opportunity zone business. (D) Qualified opportunity zone business property (i) In general The term ‘‘qualified opportunity zone business property’’ means tangible prop- erty used in a trade or business of the qualified opportunity fund if— (I) such property was acquired by the qualified opportunity fund by purchase (as defined in section 179(d)(2)) after De- cember 31, 2017, (II) the original use of such property in the qualified opportunity zone com- mences with the qualified opportunity fund or the qualified opportunity fund substantially improves the property, and (III) during substantially all of the qualified opportunity fund’s holding pe- riod for such property, substantially all of the use of such property was in a qualified opportunity zone. (ii) Substantial improvement For purposes of subparagraph (A)(ii), property shall be treated as substantially improved by the qualified opportunity fund only if, during any 30-month period beginning after the date of acquisition of such property, additions to basis with re- spect to such property in the hands of the qualified opportunity fund exceed an amount equal to the adjusted basis of such property at the beginning of such 30-month period in the hands of the qualified oppor- tunity fund. (iii) Related party For purposes of subparagraph (A)(i), the related person rule of section 179(d)(2) shall be applied pursuant to paragraph (8) of this subsection 1 in lieu of the applica- tion of such rule in section 179(d)(2)(A). (3) Qualified opportunity zone business (A) In general The term ‘‘qualified opportunity zone busi- ness’’ means a trade or business— (i) in which substantially all of the tan- gible property owned or leased by the tax- payer is qualified opportunity zone busi- ness property (determined by substituting ‘‘qualified opportunity zone business’’ for ‘‘qualified opportunity fund’’ each place it appears in paragraph (2)(D)), (ii) which satisfies the requirements of paragraphs (2), (4), and (8) of section 1397C(b), and (iii) which is not described in section 144(c)(6)(B). (B) Special rule For purposes of subparagraph (A), tangible property that ceases to be a qualified oppor- tunity zone business property shall continue to be treated as a qualified opportunity zone business property for the lesser of— (i) 5 years after the date on which such tangible property ceases to be so qualified, or (ii) the date on which such tangible prop- erty is no longer held by the qualified op- portunity zone business. (e) Applicable rules (1) Treatment of investments with mixed funds In the case of any investment in a qualified opportunity fund only a portion of which con- sists of investments of gain to which an elec- tion under subsection (a) is in effect— (A) such investment shall be treated as 2 separate investments, consisting of— (i) one investment that only includes amounts to which the election under sub- section (a) applies, and (ii) a separate investment consisting of other amounts, and (B) subsections (a), (b), and (c) shall only apply to the investment described in sub- paragraph (A)(i). (2) Related persons For purposes of this section, persons are re- lated to each other if such persons are de- scribed in section 267(b) or 707(b)(1), deter- mined by substituting ‘‘20 percent’’ for ‘‘50 percent’’ each place it occurs in such sections. (3) Decedents In the case of a decedent, amounts recog- nized under this section shall, if not properly includible in the gross income of the decedent, be includible in gross income as provided by section 691. (4) Regulations The Secretary shall prescribe such regula- tions as may be necessary or appropriate to carry out the purposes of this section, includ- ing— Page 2500 TITLE 26—INTERNAL REVENUE CODE § 1401 2 So in original. Probably should be ‘‘subsection (d)(1),’’. (A) rules for the certification of qualified opportunity funds for the purposes of this section, (B) rules to ensure a qualified opportunity fund has a reasonable period of time to rein- vest the return of capital from investments in qualified opportunity zone stock and qualified opportunity zone partnership inter- ests, and to reinvest proceeds received from the sale or disposition of qualified oppor- tunity zone property, and (C) rules to prevent abuse. (f) Failure of qualified opportunity fund to main- tain investment standard (1) In general If a qualified opportunity fund fails to meet the 90-percent requirement of subsection (c)(1),2 the qualified opportunity fund shall pay a penalty for each month it fails to meet the requirement in an amount equal to the product of— (A) the excess of— (i) the amount equal to 90 percent of its aggregate assets, over (ii) the aggregate amount of qualified op- portunity zone property held by the fund, multiplied by (B) the underpayment rate established under section 6621(a)(2) for such month. (2) Special rule for partnerships In the case that the qualified opportunity fund is a partnership, the penalty imposed by paragraph (1) shall be taken into account pro- portionately as part of the distributive share of each partner of the partnership. (3) Reasonable cause exception No penalty shall be imposed under this sub- section with respect to any failure if it is shown that such failure is due to reasonable cause. (Added Pub. L. 115–97, title I, § 13823(a), Dec. 22, 2017, 131 Stat. 2184.) Statutory Notes and Related Subsidiaries EFFECTIVE DATE Section effective on Dec. 22, 2017, see section 13823(d) of Pub. L. 115–97, set out as an Effective Date of 2017 Amendment note under section 1016 of this title. CHAPTER 2—TAX ON SELF-EMPLOYMENT INCOME Sec. 1401. Rate of tax. 1402. Definitions. 1403. Miscellaneous provisions. § 1401. Rate of tax (a) Old-age, survivors, and disability insurance In addition to other taxes, there shall be im- posed for each taxable year, on the self-employ- ment income of every individual, a tax equal to 12.4 percent of the amount of the self-employ- ment income for such taxable year. (b) Hospital insurance (1) In general In addition to the tax imposed by the pre- ceding subsection, there shall be imposed for each taxable year, on the self-employment in- come of every individual, a tax equal to 2.9 percent of the amount of the self-employment income for such taxable year. (2) Additional tax (A) In general In addition to the tax imposed by para- graph (1) and the preceding subsection, there is hereby imposed on every taxpayer (other than a corporation, estate, or trust) for each taxable year beginning after December 31, 2012, a tax equal to 0.9 percent of the self- employment income for such taxable year which is in excess of— (i) in the case of a joint return, $250,000, (ii) in the case of a married taxpayer (as defined in section 7703) filing a separate re- turn, 1⁄2 of the dollar amount determined under clause (i), and (iii) in any other case, $200,000. (B) Coordination with FICA The amounts under clause (i), (ii), or (iii) (whichever is applicable) of subparagraph (A) shall be reduced (but not below zero) by the amount of wages taken into account in de- termining the tax imposed under section 3121(b)(2) with respect to the taxpayer. (c) Relief from taxes in cases covered by certain international agreements During any period in which there is in effect an agreement entered into pursuant to section 233 of the Social Security Act with any foreign country, the self-employment income of an indi- vidual shall be exempt from the taxes imposed by this section to the extent that such self-em- ployment income is subject under such agree- ment exclusively to the laws applicable to the social security system of such foreign country. (Aug. 16, 1954, ch. 736, 68A Stat. 353; Sept. 1, 1954, ch. 1206, title II, § 208(a), 68 Stat. 1093; Aug. 1, 1956, ch. 836, title II, § 202(a), 70 Stat. 845; Pub. L. 85–840, title IV, § 401(a), Aug. 28, 1958, 72 Stat. 1041; Pub. L. 87–64, title II, § 201(a), June 30, 1961, 75 Stat. 140; Pub. L. 89–97, title I, § 111(c)(4), title III, § 321(a), July 30, 1965, 79 Stat. 342, 394; Pub. L. 90–248, title I, § 109(a)(1), (b)(1), Jan. 2, 1968, 81 Stat. 835, 836; Pub. L. 92–336, title II, § 204 (a)(1), (b)(1), July 1, 1972, 86 Stat. 420, 421; Pub. L. 92–603, title I, § 135(a)(1), (b)(1), Oct. 30, 1972, 86 Stat. 1362, 1363; Pub. L. 93–233, § 6(b)(1), Dec. 31, 1973, 87 Stat. 955; Pub. L. 94–455, title XIX, § 1901(a)(154), Oct. 4, 1976, 90 Stat. 1789; Pub. L. 95–216, title I, § 101(a)(3), (b)(3), title III, § 317(b)(1), Dec. 20, 1977, 91 Stat. 1511, 1512, 1539; Pub. L. 98–21, title I, § 124(a), (b), Apr. 20, 1983, 97 Stat. 89; Pub. L. 101–508, title XI, § 11801(a)(36), (c)(16), Nov. 5, 1990, 104 Stat. 1388–521, 1388–527; Pub. L. 108–203, title IV, § 415, Mar. 2, 2004, 118 Stat. 530; Pub. L. 111–148, title IX, § 9015(b)(1), title X, § 10906(b), Mar. 23, 2010, 124 Stat. 871, 1020; Pub. L. 111–152, title I, § 1402(b)(1)(B), Mar. 30, 2010, 124 Stat. 1063; Pub. L. 113–295, div. A, title II, § 221(a)(89), (90), Dec. 19, 2014, 128 Stat. 4050.) Editorial Notes REFERENCES IN TEXT Section 233 of the Social Security Act, referred to in subsec. (c), is classified to section 433 of Title 42, The Public Health and Welfare.