Connect with us

Accounting

Opportunity zones and other gain deferral strategies save on taxes

Published

2 years ago

on

Stocks, real estate and alternative assets are near their all-time highs amid an election year with an uncertain tax landscape looming. Investors are calling and seeking last-minute tax mitigation strategies. For clients who have big gains from appreciated assets, I often recommend the federal opportunity zone program because it’s the most flexible and most impactful tax deferral program I’ve seen in my 40-plus year career. 

As of now, the OZ program is set to begin winding down in 2026. Absent pending legislation, September 2027 will be the last chance for your clients to roll over their calendar 2026 capital gains and to participate in the OZ program. But there are still plenty of reasons to consider opportunity zone investing for tax deferral (and ultimately tax exemption) purposes.

In a nutshell, the OZ program allows investors to defer their capital gains from sales of appreciated real estate, stocks, businesses, personal residences, collectibles and even crypto through 2026. They do so by investing in one of 8,700 distressed areas of the United States via a Qualified Opportunity Fund (QOF). They just need to make their investment within 180 days of the gain reporting date. If the gain is coming through a K-1, the start of the 180-day period can be delayed until March 15 of the year following the gain date. The QOF then deploys those gains into qualifying real estate or an operating business located within one of the 8,700 designated OZ census tracts. By keeping their invested gains in place, your clients won’t pay tax on those gains until at least April of 2027. Further, if they hold the investment for 10 years, all post-reinvestment appreciation from their original QOF investment will be excluded at the federal level — and at the state level in all but six states. 

Bipartisan support

The OZ program has always had bipartisan support because it’s designed to spur economic growth in underserved areas. QOFs have raised an estimated $150 billion in equity since the program began in 2018 — far surpassing the most optimistic projections. Further, bipartisan legislation is pending to push out the gain deferral period from 2026 to Dec. 31, 2028. Proposed legislation would also bring back the basis step-ups of 10% and 5% that were part of the original program, but with shorter holding periods to qualify for the step-up — five years for the 5% step up and six years for the 10% step up.

Advantages of doing business in an opportunity zone

People typically associate OZ funds with real estate development, but about 25% of our OZ work involves operating businesses located within opportunity zone census tracts throughout the U.S. For your clients that are startups or existing businesses, there are many advantages to relocating to opportunity zones, such as more affordable real estate, rental rates and operating costs to help businesses save money. 

To become a Qualified Opportunity Zone Business (QOZB), a business must meet the 50% Gross Income Test. There are three “safe harbors” within the regulations and the business must meet only one of them:​

  • At least 50% of the services performed (based on hours) by its employees or contractors are performed within the Qualified Opportunity Zone.
  • At least 50% of the compensation paid to QOZ-based employees and independent contractors is performed in the QOZ.
  • The core operations and facilities responsible for generating half of the business’s gross revenue are located within a QOZ.

Our firm works with many serial entrepreneurs, including tech gurus and engineers, who sell their family businesses, rental real estate or personal real estate, and then roll the gains into a QOF where they start one or multiple businesses within the QOZ. Many entrepreneurs are using a combination of real estate entities and operating businesses in their OZ Funds.
OZ for homeowners with big gains 

In today’s real estate market, many homeowners are joyfully selling their residences for substantially more than they paid for their properties years or even decades ago. But after closing, they’re surprised to receive hefty capital gains tax bills on the appreciation over their first $500,000 in basis (married) or first $250,000 in basis (single). For instance, a married couple that bought their house for $200,000 30 years ago and sells it for $1 million today would have an $800,000 gain and would have to pay capital gains tax on $300,000, after claiming the $500,000 primary residence exemption ($1 million – $200,000 – $500,000). That’s a tax bill of $45,000 to $60,000 federal alone. 

If the homeowners are in good health, then reinvesting the capital gain into a QOF can offer substantial tax savings. In the above example, they still have $700,000 in cash after making the QOF investment, assuming there was no mortgage.

OZ vs. 1031 exchange

The OZ program differs from a 1031 exchange in several ways. A 1031 exchange can only be used for real estate assets, whereas with the OZ program, the gain from the sale of any type of asset — real estate, stocks, bonds, collectibles, crypto, etc. — can be placed into a QOF and receive the tax benefits. Remember, the OZ program only requires your client’s gain to be placed into the QOF (not the full market value of the investment) to defer 100% of the gain. Then the QOF or a subsidiary QOZB invests in the property. Your client cannot invest in the property directly. Example: Let’s say you had $300,000 basis on a piece of land, and you sold it for $1 million (i.e., a $700,000 gain). To get the full deferral under a 1031, you’d generally have to buy a $1 million dollar piece of property. In the OZ world, you would only have to reinvest $700,000 to eliminate 100% of your gain.

Also, under the OZ program, all the depreciation you claim, including cost segregation and everything in the interim period never gets recaptured when you dispose of it after 10 years. That ends up boosting your ROI another 2% to 3% per year. Also, your clients have time to do a ground-up build in an OZ fund using deferred tax dollars. By contrast, with a 1031 they generally can’t do a ground-up build since they must purchase real estate with an equal or higher value to defer all their 1031 gain.

Installment sales

If your clients don’t want the complexity of an OZ fund, they can simply do an installment sale. They simply sell their land with a building on it and take back a seller note for part of it. Many people overlook the fact that even if they don’t collect $1 on the note in the year of sale, they are still stuck with 100% of the recapture that they have on the depreciation they’ve previously claimed. Therefore, they must be sure to collect enough to pay the tax on the depreciation recapture. The good news is they can defer the rest of the gain until the cash is collected. Their tax basis is allocated to each tranche of collections that they receive. Also, they run the risk that capital gain rates could be higher, and that’s also a risk in the OZ world. Vice President Harris just announced plans for a 28% capital gain rate (up from 20%) for taxpayers with incomes above $1 million. We don’t know the outcome of the upcoming presidential election, so we don’t know what the 2026 tax rates are going to be. Remember, the OZ program defers the capital gain reporting — not the tax.

Delaware statutory trust

The Delaware statutory trust is another vehicle enabling investors to move or shelter their capital gains. DSTs are essentially pre-packaged 1031s that allow multiple investors to pool their money and invest in actual real estate properties (not funds) without the headache of managing the properties, which are often institutional-grade assets such as apartment buildings, office buildings and shopping centers. This collaboration allows your clients to diversify their portfolios and potentially earn higher after-tax returns on their investments.

Regardless of which party wins the White House in November, tax rates are likely to be worrisome for many of your successful clients. It will become more concerning for them in a few years when the multi-trillion-dollar U.S. debt load can no longer be ignored. If your client has gains of $1 million or more from any type of appreciated asset, the OZ program — or one of the other tactics explained above — should be on your short-list of strategies for them to consider. Doing good for others while doing well for your clients and their families. That’s a win-win all around — exactly the intention of the bipartisan drafters of the OZ program.

Related Topics:
Continue Reading

Accounting

AI-Driven Automation and Continuous Accounting Frameworks

Published

5 days ago

on

August 15, 2026

By

The accounting profession is undergoing a fundamental structural transition as enterprise finance departments shift from periodic month-end closes toward automated continuous accounting models. By integrating specialized machine learning algorithms directly into enterprise resource planning (ERP) platforms, chief accounting officers are transforming financial reporting from a retrospective exercise into a real-time operational asset.

The Shift from Periodic Close to Continuous Financial Reporting
Traditional accounting workflows heavily relied on manual data reconciliation, spreadsheet calculations, and multi-week closing cycles at the end of each fiscal period. In contrast, continuous accounting frameworks utilize automated software agents to process, validate, and post transactional data in real time as business activities occur.

Automated bank reconciliation tools cross-reference incoming bank feeds, invoice records, and purchase orders automatically. By resolving transactional variances instantly throughout the month, corporate accounting teams eliminate the traditional workload spikes associated with quarterly and annual closes.

Machine Learning in Audit Trails and Anomaly Detection
Advanced natural language processing (NLP) and machine learning tools are redefining internal audit and financial control environments. Automated systems analyze 100% of general ledger entries, identifying anomalous transactions, duplicate payments, and unauthorized journal entries in real time.

Rather than relying on random statistical sampling, corporate internal auditors can focus their attention on high-risk flags automatically surfaced by algorithmic monitoring platforms. This continuous risk assessment strengthens internal controls over financial reporting (ICFR) and significantly reduces fraud risk.

Evolving Roles for Accounting Professionals
As routine data entry and manual reconciliation tasks become fully automated, the skill set required for accounting professionals is shifting toward data analysis, system design, and strategic business advisory.
– Systems Governance: Accountants are increasingly responsible for monitoring algorithmic accuracy and managing data integration pipelines.
– Business Partnership: Finance professionals leverage real-time financial dashboards to advise operational leaders on margin management and working capital allocation.
– Regulatory Compliance Management: Accounting teams utilize automated platforms to ensure compliance with dynamic tax codes and international accounting standards.

Core Implementation Recommendations
1. Deploy Automated Reconciliation Tools: Integrate continuous transaction processing modules into existing enterprise ERP architectures.
2. Establish Algorithmic Governance Controls: Implement strict internal testing protocols to ensure automated accounting rules comply with GAAP/IFRS standards.
3. Reskill Accounting Teams: Invest in training finance staff on data analytics, workflow automation, and predictive financial modeling.

Continue Reading

Accounting

Global ESG Reporting Standards and Double Materiality Compliance

Published

1 week ago

on

August 9, 2026

By

Corporate accounting departments face expanding reporting expectations as international sustainability disclosure standards achieve regulatory enforcement across major global jurisdictions. Chief Accounting Officers (CAOs) and corporate controllers are establishing rigorous internal accounting controls to treat Environmental, Social, and Governance (ESG) metrics with the same data precision, auditability, and governance as traditional financial statements.

Regulatory Harmonization Under Global Sustainability Frameworks
The implementation of standardized sustainability reporting frameworks—notably rules established by international sustainability accounting boards—has created unified expectations for public and large private enterprises. Corporations must report standardized metrics covering greenhouse gas emissions (Scope 1, 2, and material Scope 3), energy utilization, workforce demographics, and supply chain governance.

In Europe and other participating international jurisdictions, double materiality principles are mandatory. Under double materiality, organizations must report both how external sustainability risks impact corporate financial performance, and how internal corporate operations affect surrounding environmental and social structures.

Integrating Sustainability Metrics into Core ERP Systems
To provide auditable non-financial data, enterprise organizations are integrating specialized carbon accounting and ESG management platforms directly into core ERP systems. Automated data collectors capture energy utility invoices, logistics fuel consumption metrics, and vendor compliance records in real time.

Establishing automated, traceable data pipelines ensures that non-financial reporting is supported by clear audit trails. This structured approach allows external financial auditors to provide reasonable assurance on sustainability disclosures during annual corporate reporting cycles.

Financial Impacts and Capital Market Disclosure
Accurate ESG reporting directly influences corporate cost of capital and institutional credit ratings. Commercial lenders and institutional asset managers systematically incorporate sustainability metrics into risk pricing models. Companies that demonstrate transparent, verifiable progress in operational energy efficiency and climate risk mitigation benefit from expanded access to green bond markets and lower debt pricing.

Action Steps for Accounting Leadership
1. Implement Double Materiality Frameworks: Conduct comprehensive assessments to identify material financial and operational sustainability metrics.
2. Build Auditable Non-Financial Data Pipelines: Automate ESG data collection within core accounting software to ensure data integrity.
3. Align Sustainability with Annual Financial Filings: Prepare non-financial disclosures concurrently with financial statements to satisfy regulatory audit expectations.

Continue Reading

Accounting

Modernizing Internal Controls: Machine Learning and Continuous Monitoring in Auditing

Published

2 weeks ago

on

August 5, 2026

By

Internal audit departments and corporate risk managers are modernizing internal control frameworks by shifting from periodic sampling techniques to continuous monitoring and machine learning analytics. As operational data volumes increase across enterprise organizations, automated control testing ensures financial integrity, prevents corporate fraud, and streamlines annual audit engagements.

The Limitation of Periodic Audit Sampling
Historically, internal and external auditors evaluated internal controls by reviewing random samples of financial transactions—often analyzing less than five percent of total ledger entries. In complex enterprise environments, periodic sampling methods carry inherent risks of overlooking localized financial misstatements, unauthorized disbursements, or operational control breakdowns.

In 2026, progressive internal audit functions are utilizing automated continuous monitoring platforms that evaluate one hundred percent of financial transactions in real time. Continuous control auditing systems continuously monitor general ledger entries, procurement approvals, and expense reimbursements across all operating subsidiaries.

AI-Powered Fraud Detection and Anomaly Identification
Machine learning models trained on historical corporate financial data excel at identifying subtle transactional anomalies that indicate potential fraud or operational error. Automated systems instantly flag duplicate invoice payments, unapproved vendor creation, unusual journal entry timing, and unauthorized override of authority thresholds.

When an anomaly is detected, the automated auditing platform generates an instant risk alert, allowing internal audit teams to investigate root causes immediately. Early detection prevents minor operational errors from escalating into material weaknesses in financial reporting.

Streamlining External Audit Preparation
Continuous internal control monitoring delivers significant benefits during annual external financial audits. External audit firms can review continuous audit logs and automated control testing documentation, reducing the time required for manual field testing.

This integrated approach lowers overall audit compliance fees, reduces administrative burdens on corporate accounting staff, and provides senior management and audit committees with real-time visibility into the organization’s overall risk profile.

Core Implementation Guidelines
1. Transition to 100% Data Testing: Replace legacy sampling methods with automated continuous audit monitoring systems.
2. Deploy Anomaly Detection Algorithms: Implement machine learning models to identify unauthorized transactions and operational control overrides.
3. Align Internal and External Audit Workflows: Coordinate continuous control testing protocols with external auditors to optimize annual compliance cycles.

Continue Reading

Trending