Rental Property Investor · San Francisco, CA · Member since 2016 · 118 posts · 90 votes
Hi BP Friends! I was intrigued by the topic of "opportunity zones" discussed on the BP Podcast episode 269 (the one about RE & taxes).
As I understand it, it seems almost like a "1031 exchange" type of investment vehicle but rather than property<>property, you could use other equity assets like stocks or mutual funds to invest in designated opportunity zones in low income neighborhoods via opportunity zone funds. It was recently passed with the new tax legislation.
I've been trying to research this on my own, but haven't found a ton of info or any definitive experts who know a lot about this topic so wanted to see if anyone here is familiar with this or are thinking about creating a "opportunity zone fund" to take advantage of this program?
Cincinnati OH / New York, NY · Member since 2015 · 21 posts · 4 votes
8y
Hey Katrina, I actually just spent a ton of time reading the actual bill here: https://www.congress.gov/bill/115th-congress/house... .... check out subchapter Z. I'm not a CPA nor would I consider myself an expert, but it's pretty straightforward after a few reads.
Couple things to know not in the bill that I learned elsewhere: states submitted their nominated tracts a few days ago to the Treasury. 30-60 days from now they will be certified and good to go.
There are 4 key dates:
year 5 -- 10% step up in basis
year 7 -- add'l 5% step up in basis
12/31/26 -- recognition of adj. capital gains as gross income
Rental Property Investor · San Francisco, CA · Member since 2016 · 118 posts · 90 votes
8y
Thanks so much @Eric Hornung and @Ernesto Hernandez. Ya the tax benefits seem pretty straightforward, it sounds like Treasury still needs to provide guidelines on funds and how they get certified (or something along those lines). It's unclear to me if there's a dollar amount min. required to start a fund or if anyone can do it. I'll dig into the section you mentioned. So I guess there's still some time to figure that piece out + get the confirmed designated opportunity zones for each state. @Eric Hornung are you considering making investments in opportunity areas?
Cincinnati OH / New York, NY · Member since 2015 · 21 posts · 4 votes
8y
@Katrina Razavi In terms of investment, I find the opportunity fund concept to be the most intriguing, personally. You're definitely right that it seems there are few guidelines around the requirements to be an opportunity fund except that 90% of your assets are located in an opportunity zone and the investment vehicle has to be set up to invest in opportunity zone stock, business property, or partnership interest (not including other opportunity funds).
I think we will get more information when the opportunity zones are certified in the next two months or so. Either way, this is a pretty sweet deal for people looking to raise a fund / invest in buy-and-hold. From what I can tell, the land tracts that were picked in most states aren't exactly "war zones"
Professional · Kalispell, MT · Member since 2017 · 1 post · 1 vote
8y
Hi all, a bit late to the party here. I just saw this.
I am actually fairly familiar with the O-Zones & O-Funds (at least as much as one can be since Treasury hasn't actually issued guidance yet.) The final list of Qualified Opportunity Zones was signed off by Treasury in June 2018. Based on what we've heard, no additional zones will be named. The legislation requires the O-Fund set up be a new one (e.g. no repurposing something you've already got), 90% of the monies need to be invested in an O-Zone, gains must be rolled into an O-Fund w/in 6 months of the gain occurring (ordinary income does not qualify), the O-Zone property needs to be one that is used in a trade or business (which would include rental housing, but not unimproved land). Due to the minimum hold period (5,7,10 years) for sale residential property likely won't qualify. The investor (through the Fund) must make capital expenditures of an amount at least equal to the adjusted basis of the underlying property. e.g. If you buy something for $1mm, you must spend at least an additional $1mm fixing it up.
As to the Fund itself - Funds will self-certify, but, other than what is already prescribed by the format the Fund will take and how much money is raised - will have few other restrictions or prescriptions. The fund can be formed to invest in a single asset, or multiple assets, so the Fund size is probably limited only by cost considerations. So far, there has been no additional clarification from Treasury.
Hope this helps. Feel free to reach out w/specific questions.