Opportunity Zone Investing

19 Replies

I am very interested in the new Opportunity Zone introduced to us by Amanda Han, CPA a while back. There's quite a bit of talk online, but not exactly on how to set up the Opportunity Fund and to get it going. There is an Opportunity Zone area in my "backyard", in which I am interested in investing. None of the local CPAs that I have reached out to seem to know much about it. Is anyone currently involved in an Opportunity Fund and can you share your experience?

@Mandy Cohen While the opportunity zones were finalized and published in June, the IRS and federal government have not communicated the process of setting up and maintaining Opportunity Funds. According to CPAs and tax attorneys that I have spoken to, the IRS still needs to provide additional legal guidance on how Opportunity Funds are to be created and managed and are expected to do so before the end of 2018. Until then, we're all left to speculate, unfortunately.

Thank you Paolo.  I'm going to surmise that an investment in an Opportunity Zone area (if the numbers work), should be a good move with or without the Opportunity Fund structure, since development efforts will be focused on the future economic growth of that area. Even though I may be excluded from some of the tax benefits, I'm not sure I want to wait until the end of the year to start investing there.  Still thinking about it.

Check with your CPA to see what s/he thinks about this, but mine is anticipating that, aside from investing in a targeted fund, if I purchased property in an opportunity zone with funds from unrealized capital gains, I may just have to simply fill out a form that I would submit along with my tax return. Even though the process is still up in the air, they may be able to give you some guidance on how to proceed if you take action before the rules are nailed down and communicated.

The Opportunity Zone Program must go through the formal rule-making process before the program can be finalized and investments can be made. Treasury must first propose a structure for implementing the new rule, after which the agency will issue a notice of proposed rule-making and will request public comments on the proposal. The comment period typically lasts from 30 to 60 days. Upon reviewing the comments and making any necessary changes to the rule, Treasury will issue a final rule that formally sets up the Opportunity Zone Program.

An individual will be able to set up his or her OZONE. Buying now in the OZONE should not create problems since the benefit comes with the deferral of capital gains. However, you will have to know the mechanics of setting up your fund. There are three "eligible purposes:" stock, partnership interest, and business property. I imagine that if you own an income-producing property and create your fund with that property as the asset, that it would qualify. But as Paolo has said, talk to your accountant first. 

In the Denver, Colorado market these OZONES are in some very interesting areas that are very close (within one mile) to some very vibrant areas. 

@Mandy Cohen FYI - IRS recently published it ruling around how to establish a QOF, including self certification (IRS form 8996) From what I have read your “fund” must still hold 90% of assets in OZs and your investments (Improvement costs) need to be equal to the value of building at time of purchase within 30 months after acquisition. More proposed regulations are coming soon.
@Mandy Cohen does anyone know if you set up Opportunity fund with a single member LLC, can you expand the fund with additional properties by taking on new investors (LLC members) and can those investors/LLC members come and go in/out of the fund/LLC and still realize tax benefits per their individual returns?
@Dale Pfeifer my attorney says that a single member LLC is not permitted )that’s what I had planned). The OZF can be an LLC but must be reported as a corporation or partnership. So, I set mine up with me as 99% owner and a friend as 1%. At least that’s the current advice - this stuff is changing rapidly with new guidance from the IRS. I’m happy to make an intro to my attorney for you. They do this stuff across the country.
@Shadonna N. My attorney says that you’d have to transfer the property to a new LLC because an OZ Fund must be created with the specific purpose of investing in OZs. Also, you would have to substantially improve the property. At least that’s the current advice - this stuff is changing rapidly with new guidance from the IRS. I’m happy to make an intro to my attorney for you. They do this stuff across the country.

Awesome thanks for the response and info.  I set up a fund to acquire and rehab duplexes and single family rentals.  happy to share my experience if yours is similar

Looking to invest in an Opportunity Zone Fund. I'm not looking to create my own Fund. Has anything more been fleshed out in the program? I'm still not finding much information online. We're selling a property this year and I'd like to invest the gains in an OZone Fund as opposed to doing a 1031 exchange. Anyone have insights that might be helpful for us?