Opportunity Zones ?

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Opportunity Zones ?

Jill Curran
Real Estate Agent · Little Rock, AR · Member since 2018 · 38 posts · 6 votes

Newbie here. I'm looking at a duplex as my first investment property, and after hearing about Opportunity Zones, I see that it's in one. I'm trying to understand what this means when it comes time to sell. OZ's look kind of 1031's but without the need to buy another property. Maybe that's way off in a way I'm not seeing, since I'm new to REI. Also, I heard you have to put into the property as much as the sale price, but I can't find that anywhere to verify. Anyone know the scoop on OZ properties?

Thank you all for your help educating me!

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Tommy Carey
Real Estate Agent · Los Angeles, CA · Member since 2018 · 15 posts · 19 votes
7y

Has anyone considered investing in properties in proximity to developments in or near the OZs?  If these properties have the requirement of being improved 100% in 30 months, your investment will also see, in theory,  a concurrent benefit right?  I've been picking up land listings in these areas near places that I've seen larger funds and institutions purchase property and businesses in anticipation of this benefit.  

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  • Kyle Mitchell
    Multifamily Syndicator · Greater Los Angeles Area · Member since 2015 · 399 posts · 261 votes
    7y

    @Jill Curran Here is a link to an article on OZ's, hope this helps and this doesn't get taken down.  This is not my article and I am not promoting anything.

    https://www.cpexecutive.com/post/release-of-guidelines-renews-interest-in-opportunity-zones/?utm_source=whatcountsemail&utm_medium=capital%20markets%20update&utm_campaign=capital%20markets%20update%20newsletter

    1Reply
  • Keith Gilbert
    New England · Member since 2018 · 43 posts · 21 votes
    7y
    @Jill Curran *not an expert Buying a property in an opportunity zone does not immediately qualify it for the OZ benefits. Funds must be invested in to an opportunity fund, which then must purchase and improve properties in opportunity zones. The funds will allow investors to defer or in some cases eliminate capital gains. Regarding the improvement amount, yes. Current guidance suggests you must double the basis of the home (property - land) within 30 months of purchasing the property.
    3Reply
  • Sherman Dunn
    Rental Property Investor · Baton Rouge | New Orleans, LA · Member since 2018 · 51 posts · 7 votes
    7y

    following 

    0Reply
  • Jill Curran
    OP
    Real Estate Agent · Little Rock, AR · Member since 2018 · 38 posts · 6 votes
    7y

    Thank you Kyle and Keith. This is a big help. This duplex doesn't need much work, so it doesn't apply, but I'm excited about the area it's in getting some possible infusions. Thank you all!

    0Reply
  • Drew Reynolds
    Austin, TX · Member since 2016 · 70 posts · 42 votes
    7y

    @Jill Curran - It's important to note that only the investment of gains from any capital asset sale (or exchange) is eligible for the benefits of a QOZ fund.  For example, let's say you bought stock a few years ago for $100K and sell it today for $200K.  Only the proceeds attributed to gains are eligible for OZP benefits - that is the $100K of capital gains, not the full $200K.  Investors may invest non-gain monies into a QOZ fund, but there is no tax advantages to non-gains contributions.  

    5Reply
  • Jill Curran
    OP
    Real Estate Agent · Little Rock, AR · Member since 2018 · 38 posts · 6 votes
    7y

    Thank you! It's clear to me it's not something I'll be able to benefit from, but I'm happy to know the program exists. I hope it helps the areas on the list here in Little Rock. Thank you, Drew.

    0Reply
  • BJ Everson
    Property Manager · Columbus, OH · Member since 2017 · 123 posts · 76 votes
    7y

    I've been heavily involved in the OZ program and think it'll help inject capital into the areas that need it most. You have to have capital gains that you are looking to avoid/defer paying in order to benefit from the program. So this really isn't a beneficial program for the normal REI. If, however, you have a portfolio or large multi-unit you are looking to sell then this would be a great program for you to get into.

    Please DM me if you would like further details. 

    6Reply
  • Tommy Carey
    Real Estate Agent · Los Angeles, CA · Member since 2018 · 15 posts · 19 votes
    7y

    Has anyone considered investing in properties in proximity to developments in or near the OZs?  If these properties have the requirement of being improved 100% in 30 months, your investment will also see, in theory,  a concurrent benefit right?  I've been picking up land listings in these areas near places that I've seen larger funds and institutions purchase property and businesses in anticipation of this benefit.  

    7Reply
  • Brian McHenry
    Specialist · Kansas City, MO · Member since 2017 · 11 posts · 1 vote
    7y

    To Tommy:

    The presentation I was in last week discussed that very thing: that properties adjacent to a QOZ are likely to benefit from their proximity.  I expect that this will be a longer play though as the QOZ is immediate and likely to be more desirable.  

    0Reply
  • Andre Pennix
    Member since 2019 · 3 posts · 1 vote
    7y

    Here is a link to an article that I hope helps 

    https://link.medium.com/l6yTuS86CW

    1Reply
  • Arvind V.
    New to Real Estate · Austin, TX · Member since 2018 · 24 posts · 9 votes
    7y

    Hi guys

    I’m a newbie investor looking at OZs as an option.

    So far I have been able to figure out some things from my reading (and the helpful links in this thread). One important distinction I determined was between the investment in the funds vs the investment in the property. I believe that means one can “flip” the original investment multiple times over the holding period.

    However I don’t know if the funds that have been invested into the fund have some restriction on how long they need to be invested in RE vs in cash. For example, if one flipped investments every two years and it took an average of six months to find a new investment it would mean that over a ten year period we would have eight years on RE and two years in cash. Does that get you to the 15% gain exemption or to the 100% exemption?

    Appreciate any light you can shed on this.

    0Reply
  • Matthew Ryan
    Developer · San Francisco, CA · Member since 2015 · 103 posts · 47 votes
    7y

    @Arvind V. - You need a securities attorney to help you with the fund formation. Given the confines of OZ's you want to be sure that you're doing this right if going through all the effort. My understanding is a true "fund" or open ended or closed fund structure can cycle assets and re-invest so long as they do so within 12 months. But it's all about the structure and intent of your fund which only a securities attorney can help you set-up. 

    1Reply
  • Arvind V.
    New to Real Estate · Austin, TX · Member since 2018 · 24 posts · 9 votes
    7y

    @Matthew Ryan thanks!

    0Reply
  • Lynne HartBusiness Member
    Real Estate Agent · Saint Louis, MO · Member since 2015 · 115 posts · 49 votes
    7y

    So........... is there any sort of qualification to create a fund? If I want to invest in an OZ, select and renovate my own properties, and then rent and hold them for 10 years, without anyone else involved in the fund or ownership of the property? Do the funds "manage" the renovation in any way (like with a 1031)? Can I invest money that is not a capital gain? For example if I sell a house this month, and its sales price is 100k, but only 30k of that is capital gain, can I put 100k into the fund? If I pull money out of an IRA to put into a fund (and that IRA was built up over 25 years) How do I identify the gains in that? I don't care about the tax deferring on that 70k, I just want the improvement and future gains in 2026 to be untaxed........Where can I go to get answers like this (that article above was very helpful -I need more nuts and bolts like the "Step 1" part. Where can I find step by step nuts and bolts instructions about how I can get started with this investment?

    Million questions I know!  I've been scouring the internet and not able to find clear information! TIA!

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  • Tanner Crawley
    Realtor · Lone Tree, CO · Member since 2017 · 139 posts · 112 votes
    7y
    Originally posted by @Lynne Hart:

    So........... is there any sort of qualification to create a fund? If I want to invest in an OZ, select and renovate my own properties, and then rent and hold them for 10 years, without anyone else involved in the fund or ownership of the property? Do the funds "manage" the renovation in any way (like with a 1031)? Can I invest money that is not a capital gain? For example if I sell a house this month, and its sales price is 100k, but only 30k of that is capital gain, can I put 100k into the fund? If I pull money out of an IRA to put into a fund (and that IRA was built up over 25 years) How do I identify the gains in that? I don't care about the tax deferring on that 70k, I just want the improvement and future gains in 2026 to be untaxed........Where can I go to get answers like this (that article above was very helpful -I need more nuts and bolts like the "Step 1" part. Where can I find step by step nuts and bolts instructions about how I can get started with this investment?

    Million questions I know!  I've been scouring the internet and not able to find clear information! TIA!

     So there is a lot to answer here. First is that the tax benefits only apply to capital gains, you can receive any benefits on ordinary income. Even the 10 year exemption for future gains does not apply to ordinary income. So in your example, only the 30k would be tax exempted. So if you reinvest all 100k into one property, only the 30k portion gets preferential treatment. 

    You CAN self certify as an opportunity zone and it is pretty simple to do so. You can certify a simple LLC and a "Qualified Opportunity Fund". You have 180 days to move capital gains into this fund, and then another 180 days to deploy the capital.


    1Reply
  • Lynne HartBusiness Member
    Real Estate Agent · Saint Louis, MO · Member since 2015 · 115 posts · 49 votes
    7y

    Thanks Tanner - Yes I know I have about a million "how to" type questions. Sounds like this may be more a 'cash out of a IRA" opportunity than to take my capital gains which are smaller. Is there a good place to get detailed information like what I"m asking about? Most I've found is pretty "overview" level

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  • Royce J.
    Realtor · Los Angeles, CA · Member since 2016 · 73 posts · 39 votes
    7y

    I need your help. 

    I sold some stock in April 2017 with huge capitol gains and in July 2017 purchased 2 apartment buildings in opportunity zones.

    Would I be able to amend my 2017 taxes and take advantage of the Tax Cuts and Jobs Act of December 22, 2017 even though my transactions were before December 22, 2017?

    Thanks

    1Reply
  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    7y

    @Royce J.
    The fact that you didn't set up a qualified opportunity fund will likely not allow you to defer the gain.

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  • Matthew Ryan
    Developer · San Francisco, CA · Member since 2015 · 103 posts · 47 votes
    7y

    @Royce J. - Sorry to say, no you cannot. There is no retro-activity to OZ's. 180 days from the gain of sale or the end of your partnerships tax year. 

    1Reply
  • Michael Bowie
    Investor · Knoxville, TN · Member since 2016 · 76 posts · 29 votes
    7y
    Originally posted by @Tanner Crawley:
    Originally posted by @Lynne Hart:

    So........... is there any sort of qualification to create a fund? If I want to invest in an OZ, select and renovate my own properties, and then rent and hold them for 10 years, without anyone else involved in the fund or ownership of the property? Do the funds "manage" the renovation in any way (like with a 1031)? Can I invest money that is not a capital gain? For example if I sell a house this month, and its sales price is 100k, but only 30k of that is capital gain, can I put 100k into the fund? If I pull money out of an IRA to put into a fund (and that IRA was built up over 25 years) How do I identify the gains in that? I don't care about the tax deferring on that 70k, I just want the improvement and future gains in 2026 to be untaxed........Where can I go to get answers like this (that article above was very helpful -I need more nuts and bolts like the "Step 1" part. Where can I find step by step nuts and bolts instructions about how I can get started with this investment?

    Million questions I know!  I've been scouring the internet and not able to find clear information! TIA!

     So there is a lot to answer here. First is that the tax benefits only apply to capital gains, you can receive any benefits on ordinary income. Even the 10 year exemption for future gains does not apply to ordinary income. So in your example, only the 30k would be tax exempted. So if you reinvest all 100k into one property, only the 30k portion gets preferential treatment. 

    You CAN self certify as an opportunity zone and it is pretty simple to do so. You can certify a simple LLC and a "Qualified Opportunity Fund". You have 180 days to move capital gains into this fund, and then another 180 days to deploy the capital.


    To clarify, the LLC cannot be a single member LLC. You have to have at least one more partner in the LLC to qualify for the tax advantages.

    2Reply
  • Gopinath Chandra
    Union City, CA · Member since 2017 · 51 posts · 11 votes
    7y

    I am also interested in investing in OZ for the capital gains tax benefits.

    I have short and long term capital gains (stocks/stock options) that I realized in 2019. Can I invest the entire realized capital gains (in 2019) in one or more of the OZ properties?
    Anyone has any experience investing in OZ sponsored by CrowdStreet?

    0Reply
  • Nashid Ali
    Member since 2019 · 30 posts · 9 votes
    7y

    sadly a lot of this seems like putting the sand back in the bottle or however the saying goes. the OZ law is pretty clear about the need to establish an OZ fund to invest in OZs. 

    that said, never used CrowdStreet. We have Gainvest as an investment marketplace for opportunity zones. I think equally important as choosing the right OZ project is knowing that you can also create an OZ project to give yourself 31 months to deploy capital in compliance. so instead of worrying about finding the right project within 6 months, create an OZ project that allows you 2.5+ years to find the strategy to deploy capital within compliance. 

    2Reply
  • Patrick Dittmer
    Attorney · Washington, DC · Member since 2018 · 8 posts · 4 votes
    7y

    @Drew Reynolds I'm not an expert or CPA but I believe investors who hold their investment for ten years can elect to step up basis to FMV at sale, so they may also get the possibility of no capital gains tax on appreciation of the opportunity zone investment. The full benefit is (1) deferment (to 2026) of, and 10-15 percent discount (through step-up in basis) on, the cap gains contributed and (2) no capital gains tax on the appreciation of the QOF's opportunity zone investment.

    3Reply
  • Eric Brunner
    Member since 2018 · 5 posts · 9 votes
    7y

    @Patrick Dittmer Unfortunately the only portion of basis that is eligible for the step-up to FMV after the 10 year holding period is the portion of basis attributable to the eligible gain that was originally invested. For example, if I purchase a business (easier example than a building..) in an OZ for $500k, but only $100k/$500k of the purchase funds were sourced from eligible capital gains, then I would only receive a 20% FMV step-up when I sell the property 10+ years later (100k/500k pro-ration). If the property is sold for $1.5mil 10 years later, the basis step-up would be $300k, or the portion attributable to the eligible capital gains invested (20%*1.5mil).

    2Reply
  • Viki Van Arsdale
    Rental Property Investor · Chicago, IL · Member since 2015 · 2 posts · 0 votes
    6y

    ISO answers from  CPA/Tax Attorney or anyone that can help me validate if my opportunity zone is set up correctly. My questions -

    I created the LLC as a C Corp (QO-Fund) with my husband who is my partner

    I created a Corporation C-Corp (QO-Business). 

    The Corporation is member managing the LLC

    For optimal taxation, could and should the LLC be an S Corp?
    Should the Corporation be an S Corp?

    I will be a small mom and pop investor using my own assets.

     This is an Entity and Tax question? I would like to check and balance the Entity, and understand the structure for the best tax benefit in the set up of the Entity. 

     

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