“A lot of the funds are shots in the dark with the only certainty that you get tax savings on the front end. Don’t let taxes be the cause to going into bad deals”
I did some research on this new Opportunity Fund Zone tax benefits. Below are some notes and ideas. Updated 12/3/18
I’ll be hard at work tracking down Opportunity Fund Zone deals in 2019 since I will be selling four more of my Turnkey rentals.
Note: I’m not a CPA or attorney just putting it out there to help inspire some ideas.
An Opportunity zone (OZ) is a tax-favored investment for people with capital gains.
Of course, the news is blowing this out of proportion to sell attention. Wall-Street Journal article.
- Temporary tax deferral on reinvested capital gain until 12/31/2026 (from stocks/sale of a business/real estate partnerships/direct real estate sale)
- Elimination of a portion of the reinvested capital gain over the term of the investment.
- 10% if invested for 5 years
- 15% if invested for 7 years
- Permanent exclusion (100%) of gain on appreciation in excess of initial capital gain investment if held for 10 years.
This means if you have sold an asset whether it be real estate, stocks/bonds, partnership interest, cryptocurrency or a business, you can reinvest that capital gain within 180 days and defer taxes, reduce those taxes by 15% after 7 years of holding and eliminate any capital gains created on the new asset after 10 years.
Post-tax Internal Rate of Return (IRR) increases by a staggering 50% when you invest in a Qualified Opportunity Zone Fund!
This is different from a 1031 exchange which only allows you to exchange like-kind investments and also requires an intermediary (this program does not need an intermediary).
It’s worth noting that the intent of this tax incentive is to help spur development and economic activity in “distressed communities”. So this really is an opportunity to do good and do well.
I have a boatload of income this year, is a OZ project something I should look into?
Qualified Opportunity Zone Business – A trade or business. Substantially all of its tangible property (whether owned or leased) is Qualified Opportunity Zone Business Property AND At least 50 percent of its gross income must be from the active conduct of a trade or business in an Opportunity Zone, A substantial portion of its intangible property must be used in the active conduct of its business in an Opportunity Zone, No more than 5 percent of the average unadjusted basis of its assets may consist of “non-qualified financial property,” Cannot be a golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other gambling facility, or any store the principal business of which is the sale of alcoholic beverages for consumption off-premises
Qualified Opportunity Zone Business Property – A tangible property used in a trade of business if: It is acquired by purchase (as defined in Section 179(d)(2) related party rules, but using a 20% related party test instead of 50%) after December 31, 2017; The original use in the Qualified Opportunity Zone commences with the Qualified Opportunity Zone Business OR The Qualified Opportunity Zone Business substantially improves the property; and During substantially all of the holding period for such property, substantially all of the use of such property is in an Opportunity Zone.
Substantial Improvement Test: Property is treated as “substantially improved” if, during any 30-month period beginning after the acquisition of the property, additions to basis of the property exceed an amount equal to the adjusted basis of the property at the beginning of such period. Land excluded
Article on Opportunity Fund Zones – https://drive.google.com/open?id=1F8wDToyb9olvq52U9LRMD8cBrJILm8q_
***If you are a Hui Investor please email me for the secret report on these Zones***