Opportunity fund & zones. New 2017 tax law

[Raza Rizvi]

Hello fellow investors, Can anyone please clarify if a single family or 2 family rental home can qualify as a business property if it is in an opportunity zone & I plan to substantially upgrade it per OZ requirements? Also if I take my capital gains from a sale of another property. Invest it in a 2 family in an OZ, let’s say purchase it for $100k and then add another $100k to renovate it. Would that qualify as a tax deferral? Next question - if so, then what happens if I sell it and put the proceeds back into the same fund. Is that possible/allowable? Not sure if I’m making sense. Sorry this is all new to me.

[Canesha Edwards]

@Raza Rizvi

The short answer is Yes a SFR, duplex, etc still qualifies under the regulation. The main requirement is that any property purchased in an opportunity zone must be purchased through an Opportunity zone fund.

Now, this can be a single entity fund or a fund can be set up for the sole purpose of investing in these type of properties. The type of fund you will need is going to depend on your investing strategy.

A couple of things to keep in mind. A fund has to have at minimum 90% of its assets located within a qualified opportunity zone. Also, remember the longer you hold the property, the larger the tax break.

Qualified opportunity zones hold their designation for a maximum of 10 years. Now, I believe if you sell a QOZ property and invest the capital gains from that sale into another QOZ, taxes can be deferred as long as deferment doesn’t exceed 10 years.

From my understanding, taxes can only be deferred for a max of 10 years. The program will be in place until 2047. Therefore, don’t feel rushed to find properties. Take you time to understand the program. Talk to a good lawyer and CPA who work with real estate investors and understand the regulation.

The final publication of the regulation should be posted in the Federal Registry soon. Which will clear up a lot of pending questions.

My development firm is doing a lot of work in this area. We develop our own deals as well as provide consulting services to our clients and partners. But we’re more into the Commercial/ Apartment sector. I hope this helps. Feel free to reach out to me with any questions.