What if the taxpayer realized a capital gain from an investment they made through a trust? Would the taxpayer have to utilize the same trust to make an eligible QOZ investment to defer the gains?

It depends on the type of trust. Generally, revocable trusts are grantor trusts. The grantor pays the income and capital gain taxes generated by the trust, and thus, the capital gain passes through to the grantor’s social security number for tax reporting purposes. Accordingly, if a grantor trust realizes an eligible gain, either the trust or the deemed owner of the trust may make the election to defer recognition of the gain and make the qualifying investment.

In the case of a non-grantor or irrevocable trust, if the trust generates the capital gain, then the trust is the entity that will be considered to be the taxpayer. Accordingly, in order to make the eligible QOZ investment and receive the deferral, the trust itself would have to make the investment in the QOZ fund and the creator of the trust would not be eligible to defer the gain by making and registering the QOZ fund investment under their individual name and SSN.