You don’t have to be in business to deduct certain vehicle expenses

Business negotiations aren’t about squeezing every possible concession from the other side. Both parties should leave the table believing they’ve protected their interests and gained something of value. This approach not only supports the current transaction, but also lays the groundwork for future deals. The reason is simple: Business owners with a reputation for fairness tend to attract more opportunities. Before the conversation begins Every successful negotiation starts before anyone sits down to talk. First, define what success looks like for your business and identify the point at which a deal no longer makes financial or operational sense. Establishing your minimum acceptable terms ahead of time helps prevent emotion-based decisions. Price often dominates business negotiations. But bear in mind that other factors may matter just as much, including delivery schedules, payment terms, warranties, service levels and future opportunities. Occasionally, something with little value to your organization may be highly valuable to the other party. For example, discounted excess inventory could help solve a customer’s problem while reducing your carrying costs. When appropriate, establish basic ground rules before negotiations begin. This can be especially helpful when dealing with language barriers, cultural differences or potentially contentious situations where expectations need to be clearly defined. Making strategic concessions Once negotiations begin, don’t immediately agree when a concession is requested and try to avoid making the first one. Taking time to consider requests demonstrates that what you’re giving up has real value. The concessions you do make should be relatively small and deliberate. Large early compromises may signal that your original position wasn’t realistic and encourage the other side to push for more. Also remember that several small concessions can add up, so monitor the cumulative impact throughout the discussion. Perhaps the most important principle is to never concede something without receiving something in return. Effective negotiations rely on balanced exchanges rather than one-sided compromises. Instead of responding with a simple “yes,” consider saying, “I’d be willing to do this if you can help us by…” This approach keeps negotiations collaborative while protecting your interests. Protect the relationship After receiving a concession, resist the temptation to immediately ask for more on the same issue. Overreaching can quickly erode trust and jeopardize an otherwise favorable agreement. Also, be careful about stating potentially unreasonable demands or ultimatums. Maintain a positive tone by focusing on what you can do for the other party instead of simply rejecting proposals. If negotiations seem to be deteriorating, be prepared to walk away. Assuming you want to preserve the relationship, suggest returning to the discussion another day. Stronger future deals Whether you’re negotiating with customers, suppliers, lenders or strategic partners, a positive outcome depends on preparing well before the meeting and keeping a cool head during it. Remember that negotiations should establish trust, credibility and a foundation for future business. We can help you get ready for negotiations by identifying reasonable financial parameters and integrating them into your negotiating strategies. © 2026 

Mutual funds offer an easy way to invest in a diversified portfolio compared to buying individual stocks and bonds. But the tax treatment of mutual funds isn’t so simple. How are mutual funds taxed? If you sell appreciated mutual fund shares, the resulting profit will be taxable. If you’ve held the shares for one year or less, you have a short-term gain subject to your marginal ordinary-income rate, which might be as high as 37%. If you’ve held the shares for more than one year, your lower long-term capital gains rate applies. The maximum federal long-term gains rate is 20%. But most taxpayers pay a long-term gains rate of 15%, and some may even qualify for a 0% rate. However, whether it’s a short- or long-term gain, you may also be subject to the 3.8% net investment income tax. Taxpayers with modified adjusted gross income (MAGI) over $200,000 per year ($250,000 for married couples filing jointly and $125,000 for married individuals filing separately) are subject to this extra 3.8% tax on the lesser of their net investment income or the amount by which their MAGI exceeds the applicable threshold. When you sell mutual fund shares, your gain (or loss) is measured by the difference between the amount realized from the sale and your tax basis in the shares. This is generally the amount you paid for the shares, with certain adjustments. When does a sale occur? One challenge is that certain mutual fund transactions are treated as sales even though they might not be thought of as such. It’s obvious that a sale occurs when you sell all shares in a mutual fund and receive the proceeds. Similarly, an obvious sale occurs if you direct the fund to sell the number of shares necessary for a specific dollar payout. It’s less obvious that a sale occurs if you’re swapping funds within a fund family. For example, let’s say you surrender shares of an income fund for an equal value of shares of the same company’s growth fund. No money changes hands, but this is considered a sale of the income-fund shares. Another example is when investors write checks on their funds. While this was much more common 20+ years ago, some mutual funds still provide check-writing privileges to their investors. Although it may not seem like it, if you write a check on your mutual fund account, you’re making a sale of shares. What’s your basis? Another challenge may be determining your basis for shares sold. If you sell all shares in a mutual fund in a single transaction, determining basis is relatively easy. Simply add the basis of all the shares (the amount of actual cash investments), including commissions or sales charges. Then, add distributions by the fund that were reinvested to acquire additional shares and subtract any distributions that represent a return of capital. The calculation is more complex if you dispose of only part of your interest in the fund and the shares were acquired at different times for different prices. You can use one of these methods to identify the shares sold and determine your basis: First-in, first-out. The basis of the earliest acquired shares is used as the basis for the shares sold. If the share price has been increasing over your ownership period, the older shares are likely to have a lower basis and result in more gain. Specific identification. At the time of sale, you specify the shares to sell. For example, “sell 100 of the 200 shares I purchased on June 1, 2025.” You must receive written confirmation of your request from the fund. This method may be used to lower the resulting tax bill by directing the sale of the shares with the highest basis, reducing the taxable gain. Average basis. The IRS permits you to use the average basis for shares that were acquired at various times and that were left on deposit with the fund or a custodian agent. This is easier than the specific identification method and may reduce your taxable gain compared to the first-in, first-out method. More to consider There are tax factors to consider beyond what we’ve discussed here. For example, mutual fund capital gains distributions are also generally taxable, even when reinvested in the fund. If you have questions about the tax treatment of mutual funds, contact us. We can help you be a tax-smart mutual fund investor. © 2026 

Your employees use Form W-4, “Employee’s Withholding Certificate,” to tell you how much federal income tax to withhold from their pay. Most forms are routine, but an altered certificate, unusual accompanying statement or IRS lock-in letter may require special handling. Knowing how to respond can help your business meet its withholding obligations without becoming involved in an employee’s personal tax dispute. Recognizing an invalid form An employee is responsible for the information provided on Form W-4 and signs the form under penalties of perjury. Businesses generally aren’t required to verify whether the employee’s filing status, credits, deductions or other adjustments are accurate. However, a Form W-4 may be invalid if the employee: Alters the official form, Deletes or crosses out the penalties-of-perjury declaration, or Indicates that information on the form is false. You must also reject any substitute form created by an employee. An electronic or substitute form developed by your business may be acceptable if it meets IRS requirements. If an employee submits an invalid Form W-4, you should explain that you can’t accept it and should request a valid replacement. You can generally continue using any valid Form W-4 already in effect until you receive the replacement. If you don’t have a valid form already on file, withhold as if the employee selected “single or married filing separately” and made no entries in Steps 2, 3 or 4. Similarly, a claim of exemption from withholding isn’t automatically invalid. Beginning with the 2026 Form W-4, employees claiming exemption from withholding use the exemption checkbox on the form. For 2026, an employee generally may claim exemption only if the employee had no federal income tax liability in 2025 and expects to have none in 2026. The employee — not the employer — is responsible for determining whether those requirements are met. Responding to IRS instructions Businesses aren’t required to routinely send Forms W-4 to the IRS. You generally must submit these forms only when directed to do so in a written IRS notice or in specific published guidance. The IRS uses information reported on Forms W-2 and other records to identify employees who may have inadequate withholding. If the IRS determines that an employee’s withholding needs to be increased, it may send you a “lock-in letter” specifying the filing status and adjustments that must be used. Before these instructions take effect, the employee receives a separate notice and an opportunity to dispute the determination with the IRS. Once the lock-in instructions take effect, you generally must disregard a Form W-4 that would reduce withholding below the IRS-mandated amount. However, you must honor a new form that results in more withholding. If your business accepts Forms W-4 electronically, its system must prevent an employee subject to a lock-in letter from reducing withholding below the locked-in amount. An employee who disagrees with a lock-in determination must work directly with the IRS. The employee may submit a new Form W-4 and supporting information to the address provided in the IRS notice. Don’t reduce withholding unless the IRS authorizes the change. Businesses that fail to follow lock-in instructions may be liable for the additional tax that should have been withheld. Establishing consistent procedures Your payroll procedures should explain how Forms W-4 are submitted, reviewed and retained. Train payroll personnel to recognize altered or unauthorized forms, but don’t ask them to evaluate whether an employee has calculated the proper amount of withholding. That determination generally belongs to the employee and, when necessary, the IRS. For questions about completing Form W-4, direct employees to the IRS Tax Withholding Estimator or suggest consulting their personal tax advisors. Avoid giving individualized tax advice unless your business is qualified and authorized to provide it. Know when to seek assistance Unusual Forms W-4 and IRS lock-in letters can create compliance risks if they aren’t handled correctly. We can guide you through the withholding rules to help reduce the risk of costly errors. Contact us for assistance evaluating your payroll procedures, responding to an invalid form or complying with an IRS lock-in letter. © 2026 

An important decision you must make when creating your estate plan is who’ll inherit your assets. While many of your beneficiaries are likely capable of managing an inheritance responsibly, others may be vulnerable to financial pressures, creditor claims, poor spending habits or other challenges that could erode the wealth you’ve worked hard to build. One estate planning tool that can help safeguard an inheritance is a spendthrift trust. By placing assets in this type of trust, you can provide financial support for beneficiaries while adding a layer of asset protection. You set the distribution parameters A spendthrift trust prohibits a beneficiary from directly tapping its funds or transferring rights to someone else. The trust also generally can deny access to creditors or a beneficiary’s ex-spouse. Under a spendthrift clause, the trust beneficiary relies on a trustee to provide payments based on the trust’s terms. These could be in the form of regular periodic payouts or on an “as needed” basis. The trust document spells out the nature and, if applicable, frequency of the payments. One of the primary advantages of a spendthrift trust is creditor protection. If a beneficiary experiences financial difficulties, such as a lawsuit, bankruptcy or significant debt, creditors generally can’t force the trust to distribute assets to satisfy those obligations. Because the beneficiary doesn’t own the trust’s assets outright, those assets usually can remain protected until distributions are made. Trustee acts as a gatekeeper The role of the trustee is a critical one. Depending on the trust’s terms, he or she may be responsible for making scheduled payments or have wide discretion as to whether funds should be paid, how much and when. For instance, the trustee may be authorized to withhold payments upon the occurrence of specific events (such as if the beneficiary exceeding a debt threshold or declaring bankruptcy). Designating the trustee is an important consideration, especially in situations where he or she will have broad control. A good choice can be an attorney, financial or investment advisor, or someone else with the requisite experience and financial acumen. You should also name a successor trustee in the event the designated trustee dies before the end of the term or otherwise becomes incapable of handling these duties. Other considerations Keep in mind that the protection offered by a spendthrift trust isn’t absolute. Depending on applicable law, government agencies may be able to access the trust’s assets — for example, to satisfy a tax obligation. It’s also essential to establish how and when the trust should terminate. It could be set up for a term of years or for termination to occur upon a stated event, such as your child or grandchild reaching a certain age. A valuable planning tool A spendthrift trust isn’t necessary for every estate, but it can be an effective solution when protecting assets and preserving wealth are priorities. Whether you’re concerned about creditors, divorce or financial inexperience, or you simply want greater oversight of how an inheritance is used, a spendthrift trust may help strengthen your estate plan. Contact us with questions. We can help you determine if a spendthrift trust is right for your family’s circumstances. © 2026 

Financial information is the foundation for every important business decision. Whether your goal is to improve cash flow, launch a new offering, hire additional workers or expand into a new market, accurate data enables you to make decisions confidently. An experienced advisor can help prepare this data and ensure your business is poised to capitalize on growth opportunities. Organized records Many business owners don’t realize they need bookkeeping support until problems surface. Are you frequently behind on invoicing, scrambling to prepare tax returns or struggling to reconcile bank accounts? If so, it may be time to seek help. Professional bookkeeping keeps your records organized. It also provides reliable information that allows you to make informed decisions throughout the year and avoid costly mistakes. Accurate books improve tax compliance, too, and make it easier to apply for financing when you need additional capital. Key reports Once your bookkeeping’s in order, review key financial reports regularly. At a minimum, you should always be familiar with your business’s most recent: Profit and loss statement, Balance sheet, Cash flow statement, and Accounts receivable and payable reports. When prepared carefully, these reports can provide early warning signs if they show, for example, that revenue or cash flow is slowing. Rather than reacting to financial surprises, you can address issues before they become major problems. Sustainable growth Growth creates exciting opportunities, but it also introduces challenges. Before investing in expansion, get a clear picture of your business’s current financial position. Decisions made without accurate information can strain cash flow or increase debt beyond what you can comfortably support. On the other hand, reliable records allow you to confidently evaluate and pursue your next objective, such as acquiring another business, launching a new marketing campaign or expanding your facilities. Each option may carry financial and tax consequences that deserve careful analysis. Better cash flow Even profitable businesses can struggle if cash isn’t managed effectively. Late-paying customers, for instance, are a serious problem when your business needs to pay its own employees, office rent and suppliers on time. Without careful planning, temporary cash shortages can interrupt critical operations. In addition to suggesting best practices for billing and collections, your financial advisor can help you identify any seasonal trends and develop realistic cash flow forecasts and cash reserve targets. Financial professionals can also recommend ways to control expenses and how to determine when outside financing makes sense (and where to find it). Informed decisions Successful businesses don’t grow through guesswork. They flourish because owners thoroughly understand their financial position and use that knowledge to make informed decisions. By working with us, you can reduce risk and prepare your business for long-term success. © 2026 

The IRS has made a midyear increase in the standard mileage rate for business vehicle use, including for cars, SUVs, vans, pickup trucks and panel trucks. These rates apply to gasoline- and diesel-powered vehicles as well as electric and hybrid ones. But whether the rate increase will impact your business depends on the vehicle expense reporting method you choose. Also rising is the medical and moving mileage rate. 2 business vehicle expense reporting options If you use a vehicle for business purposes, you generally have the option to deduct the actual expenses attributable to your business use. These include expenses such as gas, oil, tires, insurance, repairs, licenses and vehicle registration fees. In addition, you may claim a depreciation allowance for the vehicle based on the percentage of business use. However, annual write-offs for certain passenger autos are subject to “luxury car” limits that are indexed for inflation annually. The maximum first-year depreciation deduction allowed for a passenger car subject to the luxury car limits and placed in service in 2026 is generally $20,300 ($12,300 + $8,000 assuming bonus depreciation is claimed). So the maximum first-year deduction for such a vehicle used 90% for business in 2026 would be limited to $18,270 (90% of $20,300). (Heavier SUVs, pickups, vans and panel trucks might be eligible for larger first-year depreciation deductions.) Keeping track of every vehicle-related expense under the actual expense method can be burdensome, but you may have a simpler option. You potentially can use the IRS standard mileage rate. This shortcut is available to most taxpayers. However, you can’t use the standard mileage rate if you use five or more cars at the same time (such as in a fleet operation). To use the standard mileage rate for a vehicle you own, you generally must choose it during the first year the vehicle is available for use in your business. In later years, you can choose to use the standard mileage rate or actual expenses. If you switch to actual expenses, however, special depreciation rules apply. For a leased vehicle, taxpayers electing the standard mileage rate must use that method for the entire lease period, including renewals. With the standard mileage rate, you don’t have to account for all your actual expenses. But for each business trip you must still record the: Mileage, Dates, Destinations, Names and relationships of the business parties involved, and Business purpose of the travel. Most employees can’t deduct unreimbursed business mileage on their federal income tax returns. However, employers may use the standard mileage rate to reimburse employees tax-free under an accountable plan, provided applicable substantiation requirements are met. Business rate adjustment The IRS generally adjusts the standard mileage rates annually based on a study of vehicle operating costs. However, unusual circumstances may prompt a midyear change. The last time the IRS changed its mileage rates midyear was in 2022. For 2026, the IRS initially established a standard mileage rate of 72.5 cents per mile for the business use of a vehicle. But recent increases in fuel prices prompted the midyear adjustment. Effective July 1, 2026, the standard rate for business vehicle use increased to 76 cents per mile — up 3.5 cents from the rate for the first half of the year. This rate is scheduled to remain in effect through year end. Medical and moving rate adjustment Also effective July 1 through December 31, 2026, the new rate for driving associated with qualifying medical care or moving is 23.5 cents per mile (up from 20.5 cents per mile for the first half of the year). This is significantly lower than the rate for business use because that rate takes into account depreciation, which isn’t an allowable vehicle expense deduction for medical or moving purposes. You can deduct medical mileage only if you itemize deductions and only to the extent that your total eligible medical expenses for the year exceed 7.5% of your adjusted gross income. Moving expenses such as mileage are deductible only by certain active-duty military personnel and certain members of the intelligence community. But if you qualify, you don’t have to itemize to claim the moving expense deduction. The 14-cents-per-mile rate for charitable use of a vehicle remains unchanged. It’s set by statute, so it can only be amended by Congress. Navigating vehicle expense deductions can be tricky Determining which business vehicle expense reporting option is right for you or whether you can benefit from medical or moving mileage deductions may not be easy. There are many variables involved. And the midyear rate changes further complicate matters. Contact us for help assessing your situation and implementing a tax strategy for the rest of the year. © 2026 

Have you already made contributions to charity this year? Are you considering making more between now and year end? If so, it’s important to be familiar with the tax rules for different types of donations so you can maximize your tax benefit — or at least avoid finding out at tax filing time that your charitable deductions are smaller than you expected. For example, be aware that a new limit goes into effect this year: a 0.5% floor on the charitable deduction for itemizers. This generally means that only charitable donations in excess of 0.5% of your adjusted gross income (AGI) will be deductible if you itemize deductions. So, if your AGI is $100,000, your first $500 of charitable donations for the year won’t be deductible. Let’s take a look at some of the other significant rules, limits and changes affecting different types of donations. Giving cash When you make a cash or cash-equivalent contribution to a qualified charitable organization, if you don’t itemize deductions, you can claim the new charitable deduction for nonitemizers of up to $1,000 ($2,000 for married couples filing jointly). Only cash donations qualify. If you do itemize deductions, you can generally deduct the full amount of cash contributions once you’ve surpassed the new 0.5% floor. But, your annual deduction is generally limited to 60% of your AGI. Any excess may be carried forward for up to five years. Be aware that the IRS imposes strict recordkeeping rules for cash contributions. For instance, for cash donations of $250 or more, you must obtain a contemporaneous written acknowledgment from the charity before filing your income tax return. Donating property Several special rules apply to charitable gifts of property. For starters, property donations are subject to lower annual deduction limits (which we’ll detail shortly). On the plus side, there’s a big tax break if you donate certain appreciated property you’ve held longer than one year that would have qualified for long-term capital gains rates had you sold it instead of donating it. In this case, you can deduct the property’s current fair market value. Thus, any appreciation in value while you owned the property will be untaxed. Examples of eligible property include publicly traded securities and mutual funds. However, your annual deduction for such donations is typically limited to 30% of AGI. For tangible property, how the charity uses the property may affect the amount of your deduction. For example, if you donate a car, unless it’s being used by the charity to further its charitable mission (such as a social services charity using a van to deliver meals to the elderly), you generally may deduct only the amount the charity receives when it sells the vehicle. But a 50% of AGI limit typically applies to deductions for donations where you can’t deduct the fair market value, rather than the 30% limit. These are just a few examples of rules that apply to deductions for property donations. Contact us to find out the rules for specific property you’re considering giving to charity. Making quid pro quo contributions Generally, if you receive a benefit in return for making a donation, your deduction amount is reduced. For such a “quid pro quo contribution,” the charity must provide a good-faith estimate of the goods and services you received. You can deduct the difference between the amount you donated and the value of the benefit you received — nothing more. For example, let’s say you attend a fundraising dinner cruise costing $300. If the charity values the meal and boat ride at $100 per person, your deduction is limited to $200. However, most low-cost items and nominal gifts, like coffee mugs or pens featuring the charity’s logo, don’t have to be subtracted from your deduction. Volunteering You can’t deduct the value of the time you spend helping a charity. But you can write off related out-of-pocket expenses, such as supplies and mileage, if you itemize deductions. The deductible mileage rate for charitable miles driven is 14 cents per mile. Travel and lodging expenses can qualify, such as if you attend a convention as a delegate for the charity. However, travel expenses can’t be deducted if the trip is merely a disguised vacation. Achieving your goals If you itemize deductions, charitable donations can be a powerful tax-saving tool. But, as you can see, there’s much to consider as you plan your giving for the rest of the year. We can answer your questions and help you create a charitable giving strategy for the remainder of 2026 that aligns with your philanthropic and tax goals. © 2026 

Offering a broad menu of employee benefits can help your business attract and retain skilled workers. One benefit that’s popular among employees with families is employer-provided child care. Although this option hasn’t been financially feasible for many small businesses, recent tax law changes may give you a reason to reconsider opening (or upgrading) a child care facility, contracting with a child care provider or participating in a jointly operated arrangement. Here’s an overview of the credit and how it’s been enhanced starting in 2026. Recent changes Under Section 45F of the tax code, employers may claim a tax credit for eligible expenses paid or incurred to provide child care to employees. For 2026, the credit has increased from 25% to 40% of an employer’s qualified child care facility expenditures, plus 10% of its qualified child care resource and referral expenditures paid or incurred during the tax year. It’s limited to a total of $500,000 per tax year (up from $150,000 for 2025). Beginning in 2027, the $500,000 limit will be adjusted annually for inflation. The credit has been further enhanced for certain small businesses. If you meet the eligibility requirements, you can claim a credit equal to 50% of qualified child care facility expenses, plus 10% of qualified resource and referral expenditures, up to a maximum of $600,000 for 2026 (annually inflation-adjusted going forward). Eligible small businesses are generally those that had average annual gross receipts for the previous five tax years below an inflation-adjusted threshold. For 2026, the threshold is $32 million. Also, eligible small businesses can now pool their resources to provide child care for their employees and to use third-party intermediaries to facilitate child care services. These options may make the credit more accessible to businesses that can’t justify operating their own facilities. Qualified expenditures Qualified child care facility expenditures are amounts paid or incurred to: Acquire, construct, rehabilitate or expand property that’s 1) to be used as part of your qualified child care facility, 2) depreciable or amortizable, and 3) not part of your principal residence or an employee’s home, Operate your qualified child care facility, including the costs to train and compensate its employees and provide scholarship programs, or Contract with a qualified child care facility to provide eligible services to your employees. It’s important to note that qualified child care expenses exclude amounts that exceed the fair market value of providing such care. A qualified child care facility is one that meets all state and local regulatory requirements. In addition, the facility 1) must be used principally to provide child care (unless it’s also the personal residence of the person who operates it), 2) must be open to all employees during the tax year, and 3) can’t discriminate in favor of highly compensated employees. And, if the facility is your principal trade or business, at least 30% of enrollees must be your employees’ dependents. Additional rules To avoid doubling your tax benefits from the same expenditures, your tax basis in any qualified child care facility is reduced by the amount of the credit attributable to facility-related expenditures. You also can’t claim other deductions or credits based on the same expenses. In addition, if your child care facility ceases to operate as such or undergoes a change in ownership before the tenth tax year after the tax year in which it’s placed in service, you may have to recapture (pay back) some or all of the credit. The percentage of the credit that must be recaptured decreases gradually over the 10-year period. The Sec. 45F credit is part of the general business credit, which is composed of more than 30 separate tax credits that are subject to combined limits based on your tax liability. So the amount you can use in the current year may be limited. However, any unused credit can generally be carried back one year and carried forward for 20 years. The credit is calculated and claimed on Form 8882, “Credit for Employer-Provided Childcare Facilities and Services.” Look before you leap Providing child care for your employees can be a major long-term investment. Although the recent enhancements to the employer-provided child care credit help make this benefit option more feasible, it isn’t right for every employer. You should also consider workforce demographics, operational costs, available providers, and the associated risks and responsibilities. Even when outsourcing, you’ll have to exercise due diligence to select a reputable provider, monitor service quality and make changes as necessary. If you’re interested in pursuing this family-friendly benefit, we can help you evaluate the pros and cons and model the credit’s potential value. Contact us for more information and assistance. © 2026

The Qualified Opportunity Zone (QOZ) program provides tax incentives to invest in designated low-income communities across the United States. Tax law changes enacted last year made the program permanent and altered it, with implications for investors under both the original and renewed programs. With proposed, and eventually final, regulations on the way, the IRS has released some transitional guidance for investors, Qualified Opportunity Funds (QOFs) and Qualified Opportunity Zone businesses (QOZBs). QOZ basics The QOZ program was created by the Tax Cuts and Jobs Act (TCJA). It generally allows taxpayers to defer — and possibly reduce or eliminate — short- or long-term capital gains from the sale of their investments by reinvesting the gains in a QOF within 180 days. QOFs must maintain at least 90% of their assets in QOZ property. Qualifying investments include those in QOZBs and in new or substantially improved commercial buildings in QOZs. Under the TCJA, the tax benefits from investing in a QOF are generous. Taxes on the “rolled over” capital gains are deferred until the earlier of 1) the sale or exchange of the taxpayer’s investment (an “inclusion event”), or 2) December 31, 2026. Investors receive a 10% step-up in basis for the investment after five years, so only 90% of the rollover gain is taxable. After seven years, the step-up increases to 15%. Gains on investments left in a QOF for at least 10 years are fully tax-exempt. The One Big Beautiful Bill Act (OBBBA) established a permanent QOZ program with rolling 10-year QOZs. The first round of newly designated zones eligible for investment will begin January 1, 2027. It’s expected that about 6,500 new zones will be designated. The original QOZ designations generally expire on December 31, 2028. Under the permanent program, rollover gains can still be deferred, with a 10% step-up at year five. At that point, though, the rollover gains must be recognized. And the additional step-up at seven years has been eliminated. But the permanent exclusion of gains on the QOF investment itself after 10 years remains intact, for up to 30 years after investment. The OBBBA also created a new kind of QOZ for rural areas, with a 30% step-up on the rollover gain after five years. What’s in the guidance? The guidance in IRS Notice 2026-40 addresses several issues of concern, including: Treatment of existing QOF investments. Investors who hold a qualifying investment through December 31, 2026, must include the amount of remaining rollover gain from the investment in their income for the tax year that includes that date. Notably, they can’t defer that gain by rolling it into a new QOF. Existing QOF investors can opt to continue to hold those investments. If investors reach the 10-year holding period and satisfy certain requirements, they can elect to adjust the basis at sale or disposition to the investment’s fair market value at that time, thus eliminating taxable gains after the date of the original investment. The treatment of gains on an inclusion event that occurs before December 31, 2026, differs from that of gains where the investment is still held on December 31, 2026. In the former situation, the recognized gains may be eligible for deferral by making a new qualifying investment within 180 days. But the clock on the 10-year step-up in basis will start over and run from the date of the new investment. Tangible property acquired after 2026. Under the OBBBA, property acquired by a QOF or QOZB after December 31, 2026, generally can’t be treated as QOZB property unless it’s acquired for use in a QOZ designated after July 4, 2025. That means tangible property acquired after 2026 generally can’t qualify as QOZB property if it’s in one of the originally designated QOZs. However, the guidance outlines two exceptions that allow tangible property acquired by QOZBs after 2026 in an original QOZ to qualify: Working capital safe harbor. The safe harbor applies if an entity acquires the property under a written working capital plan that was adopted before December 31, 2026. The QOZB also must have received at least 10% of the estimated working capital assets designated by the plan before December 31, 2026, and expended at least 5% by that date. Ordinary course of business exception. This exception applies when a QOF or QOZB acquires tangible property in an existing QOZ, in the ordinary course of its business, to replace existing tangible business property (if other requirements are met). Covered replacements include the replacement or modernization of property necessary for the business. Property acquired to expand a business or transition to a new business doesn’t qualify. QOZBs and QOFs that are active in existing QOZs should ensure they can satisfy one of these requirements before the end of 2026. Seize the opportunities In addition to the above, the IRS guidance provides transitional rules, including safe harbors for how QOFs and QOZBs can continue to treat a location as if it were in a QOZ after an existing designation expires. Questions? We can provide further details on the new QOZ guidance and explain how it can benefit your tax situation. © 2026