Opportunity Zone vs 1031
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
6yOriginally posted by @Carlos Ptriawan:
You need to invest all the capital gains (not just the net sales proceed). Best route is you go to CPA and got your number from them.
100% Tax Deferral if you don't touch the money for 10 years. 10% tax discount if you plan to withdraw on 2026. The last date you can invest in OZ is the end of 2021.
This is all wrong.
With a 1031 you need to invest full proceeds- with the QOZ you ONLY need to invest the gain.
It's not 100% tax deferral at 10 years- Your INITIAL gain is recognized when you sell or at the end of 2026- and at this point you can receive up to a 10% reduciton in that gain.
Any NEW gains generated in the asset you buy can be 100% tax free if you hold it 10 years.
And you can absolutely invest after 2021 you just lose some of the benefits.
28 Replies
- Member since 2019 · 7k+ posts · 4k+ votes6y
You need to invest all the capital gains (not just the net sales proceed). Best route is you go to CPA and got your number from them.
100% Tax Deferral if you don't touch the money for 10 years. 10% tax discount if you plan to withdraw on 2026. The last date you can invest in OZ is the end of 2021. - Homeowner · San Jose · Member since 2019 · 8 posts · 2 votes6y
@Carlos Ptriawan Is the deadline based on when we sell? I saw 2028 is the opportunity zone deadline.
- Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes6y
Originally posted by @Lisa Hill:
@Carlos Ptriawan Is the deadline based on when we sell? I saw 2028 is the opportunity zone deadline.
A 1031 is much more flexible and liquid as you can sell or refi anytime. With Opp zone your in for 10 years unless you recycle the investment into another Opp zone deal and it starts all over
This site explains everything about Opp zones https://eig.org/The biggest issue for what you are looking at is the substantial improvement test. If you buy a property that is currently in service or has been in the last 10 years you have to improve it with an amount equal to the value of the structure so unless it’s a major rehab or ground up the property you can read about that here
- Investor · Front Royal, VA · Member since 2013 · 586 posts · 418 votes6y
@Lisa Hill in my experience, dealing with QOZ transactions is more for developers and heavy repositioning. There was a lot of buzz about it a year ago, but most investors realize that to substantially improve a building, you need to put so much money into it, it doesn't always work. My advice would be to just sell and 1031 into something else.
- Member since 2019 · 7k+ posts · 4k+ votes6y
Hi Lisa,
- as long as you invest in OZ before Dec 2021, you're set for the tax deferral.
- I agree with other comments, investing in OZ is very risky, most of the offering is an opportunistic-style investment (compared to core/value add in 1031 DST), so there's quite a bit risk of losing money. In fact, I know a few OZ funds that are already on some sort of trouble. You need to do a very good job DD vetting the sponsor.
- Another option other than 1031 is to live in the property that you want to sell for 2 years and then sell it later. - Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes6y
Originally posted by @Carlos Ptriawan:
You need to invest all the capital gains (not just the net sales proceed). Best route is you go to CPA and got your number from them.
100% Tax Deferral if you don't touch the money for 10 years. 10% tax discount if you plan to withdraw on 2026. The last date you can invest in OZ is the end of 2021.This is all wrong.
With a 1031 you need to invest full proceeds- with the QOZ you ONLY need to invest the gain.
It's not 100% tax deferral at 10 years- Your INITIAL gain is recognized when you sell or at the end of 2026- and at this point you can receive up to a 10% reduciton in that gain.
Any NEW gains generated in the asset you buy can be 100% tax free if you hold it 10 years.
And you can absolutely invest after 2021 you just lose some of the benefits.
- Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes6y
Originally posted by @Carlos Ptriawan:
Hi Lisa,
- as long as you invest in OZ before Dec 2021, you're set for the tax deferral.
- I agree with other comments, investing in OZ is very risky, most of the offering is an opportunistic-style investment (compared to core/value add in 1031 DST), so there's quite a bit risk of losing money. In fact, I know a few OZ funds that are already on some sort of trouble. You need to do a very good job DD vetting the sponsor.
- Another option other than 1031 is to live in the property that you want to sell for 2 years and then sell it later.This is also wrong.
Moving into a property that was formerly a rental for 2 years does NOT make the proceeds tax free.
It falls to qualified use rules where the time when it was first business use and it's related portion of gain are excluded.
Please do not provide tax advice if you're not 100% sure on a topic- there are lots of tax pros here on BP who are happy to help and we end up with a lot of incorrect information floating around online.
- Investor · New York & TN · Member since 2019 · 325 posts · 219 votes6y
Opportunity Zones can only be purchased through an Opportunity Zone Fund - You most likely won't do this.
1031 is probably the way to go for you. Here's some good info for you.
Top Ten Identification Rules for 1031 Exchanges
For a successful 1031 exchange, it is important to understand and comply with the 1031 exchange identification rules. These rules are not that complicated, but a failure to follow the rules may ruin your exchange. Here are the top ten things to remember when identifying replacement property in an exchange:
1. Deadline and General Rules.
The taxpayer has 45 days from the date that the relinquished property closes to identify the replacement property that he intends to acquire in the exchange. If there is more than one relinquished property in one exchange, the 45 days are measured from the date the first relinquished property closes. The property identified does not have to be under contract, and the taxpayer does not have to acquire everything that he identifies. It is important to note, however, that the taxpayer is not allowed to acquire anything other than the property that he has identified, and a failure to comply with the identification rules can ruin the whole exchange.
2. 3 Property Rule.
There are rules that limit how many properties the taxpayer may identify. In most cases taxpayers use the three property rule. The taxpayer may identify up to three replacement properties and may acquire one, two or all three of those.
3. 200% Rule.
If the taxpayer wants to identify more than three properties, he can use the 200% rule. This rule says that the taxpayer can identify any number of replacement properties, as long as the total fair market value of what he identifies is not greater than 200% of the fair market value of what was sold as relinquished property. First American Exchange recommends that taxpayers build in a “cushion” by identifying properties that are worth less than what is permitted, in case some properties are later determined to have a higher value than what was originally estimated.
4. 95% Rule.
There is another rule that is not commonly used by investors. The 95% rule says that a taxpayer can identify more than three properties with a total value that is more than 200% of the value of the relinquished property, but only if the taxpayer acquires at least 95% of the value of the properties that he identifies. Essentially, the taxpayer will need to acquire everything that he has identified to make this work, and that is why it is not relied on too often.
5. Property Acquired in 45 Day Period.
Any property that is actually acquired during the 45 day identification period is deemed to be properly identified. It’s important to note that if some property is acquired during this period and some property is acquired later using another one of the identification rules, the property acquired during the first 45 days needs to be counted as one identified property. For example, if you acquire one property during the first 45 days and you plan to use the 3 property rule and buy more properties after the 45 days, you only have two more properties to identify because you have already used up one.
6. Manner of Identification.
The identification must be in writing and signed by the taxpayer, and the property must be unambiguously described. This generally means that the taxpayer identifies either the address of the property or its legal description. A condo should have a unit number, and if the taxpayer is buying less than a 100% interest, the percentage share of what is being acquired should be noted.
7. Who Must Receive the Identification.
The taxpayer must send the identification notice either to:
1) The person obligated to transfer the replacement property to the taxpayer (such as the seller of the replacement property) or;
2) To any other person “involved” in the exchange (such as the qualified intermediary, escrow agent or title company), other than a “disqualified person,” such as an agent or family member of the taxpayer. Most identification notices are sent to the qualified intermediary.
8. Replacement Property Must be Same as What Was Identified.
The taxpayer must receive “substantially the same” property as he identified. The regulations contain four examples to illustrate what “substantially the same” means. In one example, the taxpayer identifies two acres of unimproved land and then acquires 1.5 acres of that land. The property acquired is substantially the same because what the taxpayer received was not different in nature or character from what was identified, and the taxpayer acquired 75% of the fair market value of the property identified. In another example, the taxpayer identifies a barn and two acres of land, and then acquires the barn with the land underlying the barn only. The IRS says that the property acquired was not substantially the same as the property identified because it differed in its basic nature or character.
9. Property to be Constructed.
If the replacement property is under construction at the time of identification, the taxpayer must include not only the address or legal description of the property, but also must include a description of what is to be constructed on the property.
10. Reverse Exchanges.
If the taxpayer is doing a reverse exchange where the accommodator acquires the replacement property before the taxpayer closes on the sale of the relinquished property, the taxpayer must identify in writing what he intends to sell and that identification must be sent no later than 45 days after the accommodator closes on the replacement property.
- Investor · New York & TN · Member since 2019 · 325 posts · 219 votes6y
One more thing, most attorney's, accountants or bankers will know little to nothing about OZ or 1031's.
You should find an attorney near you or where you would like to purchase your replacement property who does know and handles 1031's.
- 6yDave FosterBusiness MemberQualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
@Lisa Hill, As you can tell the thinking on this is all over the map. Many of the regs concerning OZs were rolled out on an on going basis. And there's some sunset provisions that cloud things as well. @Natalie Kolodij gave you some good feed back. In a nutshell the key difference is
1. OZ partial tax deferral, only invest the gain. Possibly less liquid (more on that in a minute)
2. 1031 full tax deferral available. but must invest all equity and basis to get full deferral, Possibly more liquid.
I'm an intermediary for 1031s so there's a bias (not because I do them for others but because I use them myself). So know there's a bias. But my feeling is that OZs were an opportunistic manipulation of the tax code for the benefit of a few already placed pool of large investors. It was based in part on the faulty premise that the influx of dollars into a blighted area could change the quality of the area. And it became a gerrymandering nightmare of the largest magnitude. The benefits of OZ investing the way it has to be in order to get maximum deferral are very restrictive over a long time including large cash influxes as @Greg Dickerson said.
Not poo poohing Ozs in every situation. I just think they're not as effective as 1031 for tax deferral. And not as easy to use to get the deferral available.
Here though is your opportunity. You have a property you've identified that is in an opportunity zone. So you could 1031 into that property which would defer all tax and depreciation recapture. And after the fact explore the opportunity to create your own opportunity fund with that property. In the right circumstance you could end up as your own opportunity fund and have also benefited from the full tax deferral of the 1031.
A 1031 can be scary with it's tight timelines. But compare that with the fear over years of a misstep that costs you the deferral in an opportunity fund play. And done correctly the 1031 is seamless and invisible. Especially if you've already located your replacement.
The 1031 Investor5137 Reviews - Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes6y
Originally posted by @Peter Nikic:
Opportunity Zones can only be purchased through an Opportunity Zone Fund - You most likely won't do this.
1031 is probably the way to go for you. Here's some good info for you.
Top Ten Identification Rules for 1031 Exchanges
For a successful 1031 exchange, it is important to understand and comply with the 1031 exchange identification rules. These rules are not that complicated, but a failure to follow the rules may ruin your exchange. Here are the top ten things to remember when identifying replacement property in an exchange:
1. Deadline and General Rules.
The taxpayer has 45 days from the date that the relinquished property closes to identify the replacement property that he intends to acquire in the exchange. If there is more than one relinquished property in one exchange, the 45 days are measured from the date the first relinquished property closes. The property identified does not have to be under contract, and the taxpayer does not have to acquire everything that he identifies. It is important to note, however, that the taxpayer is not allowed to acquire anything other than the property that he has identified, and a failure to comply with the identification rules can ruin the whole exchange.
2. 3 Property Rule.
There are rules that limit how many properties the taxpayer may identify. In most cases taxpayers use the three property rule. The taxpayer may identify up to three replacement properties and may acquire one, two or all three of those.
3. 200% Rule.
If the taxpayer wants to identify more than three properties, he can use the 200% rule. This rule says that the taxpayer can identify any number of replacement properties, as long as the total fair market value of what he identifies is not greater than 200% of the fair market value of what was sold as relinquished property. First American Exchange recommends that taxpayers build in a “cushion” by identifying properties that are worth less than what is permitted, in case some properties are later determined to have a higher value than what was originally estimated.
4. 95% Rule.
There is another rule that is not commonly used by investors. The 95% rule says that a taxpayer can identify more than three properties with a total value that is more than 200% of the value of the relinquished property, but only if the taxpayer acquires at least 95% of the value of the properties that he identifies. Essentially, the taxpayer will need to acquire everything that he has identified to make this work, and that is why it is not relied on too often.
5. Property Acquired in 45 Day Period.
Any property that is actually acquired during the 45 day identification period is deemed to be properly identified. It’s important to note that if some property is acquired during this period and some property is acquired later using another one of the identification rules, the property acquired during the first 45 days needs to be counted as one identified property. For example, if you acquire one property during the first 45 days and you plan to use the 3 property rule and buy more properties after the 45 days, you only have two more properties to identify because you have already used up one.
6. Manner of Identification.
The identification must be in writing and signed by the taxpayer, and the property must be unambiguously described. This generally means that the taxpayer identifies either the address of the property or its legal description. A condo should have a unit number, and if the taxpayer is buying less than a 100% interest, the percentage share of what is being acquired should be noted.
7. Who Must Receive the Identification.
The taxpayer must send the identification notice either to:
1) The person obligated to transfer the replacement property to the taxpayer (such as the seller of the replacement property) or;
2) To any other person “involved” in the exchange (such as the qualified intermediary, escrow agent or title company), other than a “disqualified person,” such as an agent or family member of the taxpayer. Most identification notices are sent to the qualified intermediary.
8. Replacement Property Must be Same as What Was Identified.
The taxpayer must receive “substantially the same” property as he identified. The regulations contain four examples to illustrate what “substantially the same” means. In one example, the taxpayer identifies two acres of unimproved land and then acquires 1.5 acres of that land. The property acquired is substantially the same because what the taxpayer received was not different in nature or character from what was identified, and the taxpayer acquired 75% of the fair market value of the property identified. In another example, the taxpayer identifies a barn and two acres of land, and then acquires the barn with the land underlying the barn only. The IRS says that the property acquired was not substantially the same as the property identified because it differed in its basic nature or character.
9. Property to be Constructed.
If the replacement property is under construction at the time of identification, the taxpayer must include not only the address or legal description of the property, but also must include a description of what is to be constructed on the property.
10. Reverse Exchanges.
If the taxpayer is doing a reverse exchange where the accommodator acquires the replacement property before the taxpayer closes on the sale of the relinquished property, the taxpayer must identify in writing what he intends to sell and that identification must be sent no later than 45 days after the accommodator closes on the replacement property.
The first part of your statement is incorrect. You do not need to invest in a fund. You can purchase a property yourself using your capital gain, you set up an LLC to take title, then you self certify at the end of the year designating The investment as an opportunity zone fund It's actually a pretty simple process.
- Rental Property Investor · Cranford, NJ · Member since 2019 · 245 posts · 148 votes6y
I would use a 1031 business (custodian, accommodator, enter any name you like). That's what I did and always consulted them BEFORE doing anything. One small mistake can cost you a fortune. So best to be sure. This is how I successfully sold one property and purchased two, all tax deferred.
Good luck!
- Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes6y
Originally posted by @Greg Dickerson:
Originally posted by @Peter Nikic:
Opportunity Zones can only be purchased through an Opportunity Zone Fund - You most likely won't do this.
1031 is probably the way to go for you. Here's some good info for you.
Top Ten Identification Rules for 1031 Exchanges
For a successful 1031 exchange, it is important to understand and comply with the 1031 exchange identification rules. These rules are not that complicated, but a failure to follow the rules may ruin your exchange. Here are the top ten things to remember when identifying replacement property in an exchange:
1. Deadline and General Rules.
The taxpayer has 45 days from the date that the relinquished property closes to identify the replacement property that he intends to acquire in the exchange. If there is more than one relinquished property in one exchange, the 45 days are measured from the date the first relinquished property closes. The property identified does not have to be under contract, and the taxpayer does not have to acquire everything that he identifies. It is important to note, however, that the taxpayer is not allowed to acquire anything other than the property that he has identified, and a failure to comply with the identification rules can ruin the whole exchange.
2. 3 Property Rule.
There are rules that limit how many properties the taxpayer may identify. In most cases taxpayers use the three property rule. The taxpayer may identify up to three replacement properties and may acquire one, two or all three of those.
3. 200% Rule.
If the taxpayer wants to identify more than three properties, he can use the 200% rule. This rule says that the taxpayer can identify any number of replacement properties, as long as the total fair market value of what he identifies is not greater than 200% of the fair market value of what was sold as relinquished property. First American Exchange recommends that taxpayers build in a “cushion” by identifying properties that are worth less than what is permitted, in case some properties are later determined to have a higher value than what was originally estimated.
4. 95% Rule.
There is another rule that is not commonly used by investors. The 95% rule says that a taxpayer can identify more than three properties with a total value that is more than 200% of the value of the relinquished property, but only if the taxpayer acquires at least 95% of the value of the properties that he identifies. Essentially, the taxpayer will need to acquire everything that he has identified to make this work, and that is why it is not relied on too often.
5. Property Acquired in 45 Day Period.
Any property that is actually acquired during the 45 day identification period is deemed to be properly identified. It’s important to note that if some property is acquired during this period and some property is acquired later using another one of the identification rules, the property acquired during the first 45 days needs to be counted as one identified property. For example, if you acquire one property during the first 45 days and you plan to use the 3 property rule and buy more properties after the 45 days, you only have two more properties to identify because you have already used up one.
6. Manner of Identification.
The identification must be in writing and signed by the taxpayer, and the property must be unambiguously described. This generally means that the taxpayer identifies either the address of the property or its legal description. A condo should have a unit number, and if the taxpayer is buying less than a 100% interest, the percentage share of what is being acquired should be noted.
7. Who Must Receive the Identification.
The taxpayer must send the identification notice either to:
1) The person obligated to transfer the replacement property to the taxpayer (such as the seller of the replacement property) or;
2) To any other person “involved” in the exchange (such as the qualified intermediary, escrow agent or title company), other than a “disqualified person,” such as an agent or family member of the taxpayer. Most identification notices are sent to the qualified intermediary.
8. Replacement Property Must be Same as What Was Identified.
The taxpayer must receive “substantially the same” property as he identified. The regulations contain four examples to illustrate what “substantially the same” means. In one example, the taxpayer identifies two acres of unimproved land and then acquires 1.5 acres of that land. The property acquired is substantially the same because what the taxpayer received was not different in nature or character from what was identified, and the taxpayer acquired 75% of the fair market value of the property identified. In another example, the taxpayer identifies a barn and two acres of land, and then acquires the barn with the land underlying the barn only. The IRS says that the property acquired was not substantially the same as the property identified because it differed in its basic nature or character.
9. Property to be Constructed.
If the replacement property is under construction at the time of identification, the taxpayer must include not only the address or legal description of the property, but also must include a description of what is to be constructed on the property.
10. Reverse Exchanges.
If the taxpayer is doing a reverse exchange where the accommodator acquires the replacement property before the taxpayer closes on the sale of the relinquished property, the taxpayer must identify in writing what he intends to sell and that identification must be sent no later than 45 days after the accommodator closes on the replacement property.
The first part of your statement is incorrect. You do not need to invest in a fund. You can purchase a property yourself using your capital gain, you set up an LLC to take title, then you self certify at the end of the year designating The investment as an opportunity zone fund It's actually a pretty simple process.
You're actually both right. (Or wrong, depending on how abrasive you want my answer to read haha)
It DOES need to be purchased in a fund.
However you can create your own fund. It CAN be an LLC but it has to be a 2 person LLC (Partnership) or a Corporation.
- Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes6y
Originally posted by @Natalie Kolodij:
Originally posted by @Greg Dickerson:
Originally posted by @Peter Nikic:
Opportunity Zones can only be purchased through an Opportunity Zone Fund - You most likely won't do this.
1031 is probably the way to go for you. Here's some good info for you.
Top Ten Identification Rules for 1031 Exchanges
For a successful 1031 exchange, it is important to understand and comply with the 1031 exchange identification rules. These rules are not that complicated, but a failure to follow the rules may ruin your exchange. Here are the top ten things to remember when identifying replacement property in an exchange:
1. Deadline and General Rules.
The taxpayer has 45 days from the date that the relinquished property closes to identify the replacement property that he intends to acquire in the exchange. If there is more than one relinquished property in one exchange, the 45 days are measured from the date the first relinquished property closes. The property identified does not have to be under contract, and the taxpayer does not have to acquire everything that he identifies. It is important to note, however, that the taxpayer is not allowed to acquire anything other than the property that he has identified, and a failure to comply with the identification rules can ruin the whole exchange.
2. 3 Property Rule.
There are rules that limit how many properties the taxpayer may identify. In most cases taxpayers use the three property rule. The taxpayer may identify up to three replacement properties and may acquire one, two or all three of those.
3. 200% Rule.
If the taxpayer wants to identify more than three properties, he can use the 200% rule. This rule says that the taxpayer can identify any number of replacement properties, as long as the total fair market value of what he identifies is not greater than 200% of the fair market value of what was sold as relinquished property. First American Exchange recommends that taxpayers build in a “cushion” by identifying properties that are worth less than what is permitted, in case some properties are later determined to have a higher value than what was originally estimated.
4. 95% Rule.
There is another rule that is not commonly used by investors. The 95% rule says that a taxpayer can identify more than three properties with a total value that is more than 200% of the value of the relinquished property, but only if the taxpayer acquires at least 95% of the value of the properties that he identifies. Essentially, the taxpayer will need to acquire everything that he has identified to make this work, and that is why it is not relied on too often.
5. Property Acquired in 45 Day Period.
Any property that is actually acquired during the 45 day identification period is deemed to be properly identified. It’s important to note that if some property is acquired during this period and some property is acquired later using another one of the identification rules, the property acquired during the first 45 days needs to be counted as one identified property. For example, if you acquire one property during the first 45 days and you plan to use the 3 property rule and buy more properties after the 45 days, you only have two more properties to identify because you have already used up one.
6. Manner of Identification.
The identification must be in writing and signed by the taxpayer, and the property must be unambiguously described. This generally means that the taxpayer identifies either the address of the property or its legal description. A condo should have a unit number, and if the taxpayer is buying less than a 100% interest, the percentage share of what is being acquired should be noted.
7. Who Must Receive the Identification.
The taxpayer must send the identification notice either to:
1) The person obligated to transfer the replacement property to the taxpayer (such as the seller of the replacement property) or;
2) To any other person “involved” in the exchange (such as the qualified intermediary, escrow agent or title company), other than a “disqualified person,” such as an agent or family member of the taxpayer. Most identification notices are sent to the qualified intermediary.
8. Replacement Property Must be Same as What Was Identified.
The taxpayer must receive “substantially the same” property as he identified. The regulations contain four examples to illustrate what “substantially the same” means. In one example, the taxpayer identifies two acres of unimproved land and then acquires 1.5 acres of that land. The property acquired is substantially the same because what the taxpayer received was not different in nature or character from what was identified, and the taxpayer acquired 75% of the fair market value of the property identified. In another example, the taxpayer identifies a barn and two acres of land, and then acquires the barn with the land underlying the barn only. The IRS says that the property acquired was not substantially the same as the property identified because it differed in its basic nature or character.
9. Property to be Constructed.
If the replacement property is under construction at the time of identification, the taxpayer must include not only the address or legal description of the property, but also must include a description of what is to be constructed on the property.
10. Reverse Exchanges.
If the taxpayer is doing a reverse exchange where the accommodator acquires the replacement property before the taxpayer closes on the sale of the relinquished property, the taxpayer must identify in writing what he intends to sell and that identification must be sent no later than 45 days after the accommodator closes on the replacement property.
The first part of your statement is incorrect. You do not need to invest in a fund. You can purchase a property yourself using your capital gain, you set up an LLC to take title, then you self certify at the end of the year designating The investment as an opportunity zone fund It's actually a pretty simple process.
You're actually both right. (Or wrong, depending on how abrasive you want my answer to read haha)
It DOES need to be purchased in a fund.
However you can create your own fund. It CAN be an LLC but it has to be a 2 person LLC (Partnership) or a Corporation.
Hi Natalie - as of right now the LLC can be a single member or even individual taxpayer. You can read about it here https://eig.org/opportunityzon...
All that being said the IRS has not provided final guidance yet and there is still more to come.
this is the actual draft form for certification - Investor · New York & TN · Member since 2019 · 325 posts · 219 votes6y
@Natalie Kolodij technically it needs to be an OZ Fund, so I was right :). Yes, you can create your own fund ( I'm not saying I know what it takes to do that).
None-the-less @Lisa Hill needs help clarifying/simplifying things, my guess is a 1031 will simply accommodate her needs given her expertise and investment amount.
@Greg Dickerson seems like you're pretty knowledgeable, thanks for the back up (even though I wasn't wrong - LOL). What's happening with all the political volatility in VA? how will it affect multi family properties?
- Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes6y
Originally posted by @Peter Nikic:
@Natalie Kolodij technically it needs to be an OZ Fund, so I was right :). Yes, you can create your own fund ( I'm not saying I know what it takes to do that).
None-the-less @Lisa Hill needs help clarifying/simplifying things, my guess is a 1031 will simply accommodate her needs given her expertise and investment amount.
@Greg Dickerson seems like you're pretty knowledgeable, thanks for the back up (even though I wasn't wrong - LOL). What's happening with all the political volatility in VA? how will it affect multi family properties?
Yes a bit of Semantics at play here. 1031 is definitely more flexible and easier to implement.
The markets in VA are very strong. My region we have DC, Charlotteville which is home to UVA, Richmond which is the state capital and Hampton Roads the largest Naval base in the world, several other bases as well as Va Beach and Norfolk. We are fairly well insulated against most economic cycles.
- Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes6y
Originally posted by @Greg Dickerson:
Originally posted by @Natalie Kolodij:
Originally posted by @Greg Dickerson:
Originally posted by @Peter Nikic:
Opportunity Zones can only be purchased through an Opportunity Zone Fund - You most likely won't do this.
1031 is probably the way to go for you. Here's some good info for you.
Top Ten Identification Rules for 1031 Exchanges
For a successful 1031 exchange, it is important to understand and comply with the 1031 exchange identification rules. These rules are not that complicated, but a failure to follow the rules may ruin your exchange. Here are the top ten things to remember when identifying replacement property in an exchange:
1. Deadline and General Rules.
The taxpayer has 45 days from the date that the relinquished property closes to identify the replacement property that he intends to acquire in the exchange. If there is more than one relinquished property in one exchange, the 45 days are measured from the date the first relinquished property closes. The property identified does not have to be under contract, and the taxpayer does not have to acquire everything that he identifies. It is important to note, however, that the taxpayer is not allowed to acquire anything other than the property that he has identified, and a failure to comply with the identification rules can ruin the whole exchange.
2. 3 Property Rule.
There are rules that limit how many properties the taxpayer may identify. In most cases taxpayers use the three property rule. The taxpayer may identify up to three replacement properties and may acquire one, two or all three of those.
3. 200% Rule.
If the taxpayer wants to identify more than three properties, he can use the 200% rule. This rule says that the taxpayer can identify any number of replacement properties, as long as the total fair market value of what he identifies is not greater than 200% of the fair market value of what was sold as relinquished property. First American Exchange recommends that taxpayers build in a “cushion” by identifying properties that are worth less than what is permitted, in case some properties are later determined to have a higher value than what was originally estimated.
4. 95% Rule.
There is another rule that is not commonly used by investors. The 95% rule says that a taxpayer can identify more than three properties with a total value that is more than 200% of the value of the relinquished property, but only if the taxpayer acquires at least 95% of the value of the properties that he identifies. Essentially, the taxpayer will need to acquire everything that he has identified to make this work, and that is why it is not relied on too often.
5. Property Acquired in 45 Day Period.
Any property that is actually acquired during the 45 day identification period is deemed to be properly identified. It’s important to note that if some property is acquired during this period and some property is acquired later using another one of the identification rules, the property acquired during the first 45 days needs to be counted as one identified property. For example, if you acquire one property during the first 45 days and you plan to use the 3 property rule and buy more properties after the 45 days, you only have two more properties to identify because you have already used up one.
6. Manner of Identification.
The identification must be in writing and signed by the taxpayer, and the property must be unambiguously described. This generally means that the taxpayer identifies either the address of the property or its legal description. A condo should have a unit number, and if the taxpayer is buying less than a 100% interest, the percentage share of what is being acquired should be noted.
7. Who Must Receive the Identification.
The taxpayer must send the identification notice either to:
1) The person obligated to transfer the replacement property to the taxpayer (such as the seller of the replacement property) or;
2) To any other person “involved” in the exchange (such as the qualified intermediary, escrow agent or title company), other than a “disqualified person,” such as an agent or family member of the taxpayer. Most identification notices are sent to the qualified intermediary.
8. Replacement Property Must be Same as What Was Identified.
The taxpayer must receive “substantially the same” property as he identified. The regulations contain four examples to illustrate what “substantially the same” means. In one example, the taxpayer identifies two acres of unimproved land and then acquires 1.5 acres of that land. The property acquired is substantially the same because what the taxpayer received was not different in nature or character from what was identified, and the taxpayer acquired 75% of the fair market value of the property identified. In another example, the taxpayer identifies a barn and two acres of land, and then acquires the barn with the land underlying the barn only. The IRS says that the property acquired was not substantially the same as the property identified because it differed in its basic nature or character.
9. Property to be Constructed.
If the replacement property is under construction at the time of identification, the taxpayer must include not only the address or legal description of the property, but also must include a description of what is to be constructed on the property.
10. Reverse Exchanges.
If the taxpayer is doing a reverse exchange where the accommodator acquires the replacement property before the taxpayer closes on the sale of the relinquished property, the taxpayer must identify in writing what he intends to sell and that identification must be sent no later than 45 days after the accommodator closes on the replacement property.
The first part of your statement is incorrect. You do not need to invest in a fund. You can purchase a property yourself using your capital gain, you set up an LLC to take title, then you self certify at the end of the year designating The investment as an opportunity zone fund It's actually a pretty simple process.
You're actually both right. (Or wrong, depending on how abrasive you want my answer to read haha)
It DOES need to be purchased in a fund.
However you can create your own fund. It CAN be an LLC but it has to be a 2 person LLC (Partnership) or a Corporation.
Hi Natalie - as of right now the LLC can be a single member or even individual taxpayer. You can read about it here https://eig.org/opportunityzon...
All that being said the IRS has not provided final guidance yet and there is still more to come.
this is the actual draft form for certificationNo you can not.
The actual FUND needs to be a Partnership or corporation. This is from the link you shared
"
A qualified Opportunity Fund is any investment vehicle organized as a corporation or partnership with the specific purpose of investing in Opportunity Zone assets. The private sector is responsible for establishing Opportunity Funds.
"The 8996 form which you file to register as a fund is only available to partnerships or corporations.
A personal person or LLC can invest IN the fund. But the fund it's send needs to be a partnership or corporation.
Also we have the final guidance it was released last month"
IR-2019-212, December 19, 2019
WASHINGTON — The Internal Revenue Service today issued final regulations (PDF) providing details about investment in qualified opportunity zones (QOZ)."
- Rental Property Investor · Houston, TX · Member since 2015 · 43 posts · 28 votes6y
A damn shame. There are some professionals who owe it to themselves to learn up on QOZs and QOFs. The first couple of comments were very wrong and misleading. 1031 Exchanges have become more strict. And most who have trouble having the numbers pencil out in OZs are focused on major metro area new development. Price is already high in those parts. Rehabbing/recycling vacant properties is far more viable, and if those numbers are not penciling out, then it's most likely in a highly populated metro area where all the funds are honed in on...except for mine.
- Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes6y
Originally posted by @Natalie Kolodij:
Originally posted by @Greg Dickerson:
Originally posted by @Natalie Kolodij:
Originally posted by @Greg Dickerson:
Originally posted by @Peter Nikic:
Opportunity Zones can only be purchased through an Opportunity Zone Fund - You most likely won't do this.
1031 is probably the way to go for you. Here's some good info for you.
Top Ten Identification Rules for 1031 Exchanges
For a successful 1031 exchange, it is important to understand and comply with the 1031 exchange identification rules. These rules are not that complicated, but a failure to follow the rules may ruin your exchange. Here are the top ten things to remember when identifying replacement property in an exchange:
1. Deadline and General Rules.
The taxpayer has 45 days from the date that the relinquished property closes to identify the replacement property that he intends to acquire in the exchange. If there is more than one relinquished property in one exchange, the 45 days are measured from the date the first relinquished property closes. The property identified does not have to be under contract, and the taxpayer does not have to acquire everything that he identifies. It is important to note, however, that the taxpayer is not allowed to acquire anything other than the property that he has identified, and a failure to comply with the identification rules can ruin the whole exchange.
2. 3 Property Rule.
There are rules that limit how many properties the taxpayer may identify. In most cases taxpayers use the three property rule. The taxpayer may identify up to three replacement properties and may acquire one, two or all three of those.
3. 200% Rule.
If the taxpayer wants to identify more than three properties, he can use the 200% rule. This rule says that the taxpayer can identify any number of replacement properties, as long as the total fair market value of what he identifies is not greater than 200% of the fair market value of what was sold as relinquished property. First American Exchange recommends that taxpayers build in a “cushion” by identifying properties that are worth less than what is permitted, in case some properties are later determined to have a higher value than what was originally estimated.
4. 95% Rule.
There is another rule that is not commonly used by investors. The 95% rule says that a taxpayer can identify more than three properties with a total value that is more than 200% of the value of the relinquished property, but only if the taxpayer acquires at least 95% of the value of the properties that he identifies. Essentially, the taxpayer will need to acquire everything that he has identified to make this work, and that is why it is not relied on too often.
5. Property Acquired in 45 Day Period.
Any property that is actually acquired during the 45 day identification period is deemed to be properly identified. It’s important to note that if some property is acquired during this period and some property is acquired later using another one of the identification rules, the property acquired during the first 45 days needs to be counted as one identified property. For example, if you acquire one property during the first 45 days and you plan to use the 3 property rule and buy more properties after the 45 days, you only have two more properties to identify because you have already used up one.
6. Manner of Identification.
The identification must be in writing and signed by the taxpayer, and the property must be unambiguously described. This generally means that the taxpayer identifies either the address of the property or its legal description. A condo should have a unit number, and if the taxpayer is buying less than a 100% interest, the percentage share of what is being acquired should be noted.
7. Who Must Receive the Identification.
The taxpayer must send the identification notice either to:
1) The person obligated to transfer the replacement property to the taxpayer (such as the seller of the replacement property) or;
2) To any other person “involved” in the exchange (such as the qualified intermediary, escrow agent or title company), other than a “disqualified person,” such as an agent or family member of the taxpayer. Most identification notices are sent to the qualified intermediary.
8. Replacement Property Must be Same as What Was Identified.
The taxpayer must receive “substantially the same” property as he identified. The regulations contain four examples to illustrate what “substantially the same” means. In one example, the taxpayer identifies two acres of unimproved land and then acquires 1.5 acres of that land. The property acquired is substantially the same because what the taxpayer received was not different in nature or character from what was identified, and the taxpayer acquired 75% of the fair market value of the property identified. In another example, the taxpayer identifies a barn and two acres of land, and then acquires the barn with the land underlying the barn only. The IRS says that the property acquired was not substantially the same as the property identified because it differed in its basic nature or character.
9. Property to be Constructed.
If the replacement property is under construction at the time of identification, the taxpayer must include not only the address or legal description of the property, but also must include a description of what is to be constructed on the property.
10. Reverse Exchanges.
If the taxpayer is doing a reverse exchange where the accommodator acquires the replacement property before the taxpayer closes on the sale of the relinquished property, the taxpayer must identify in writing what he intends to sell and that identification must be sent no later than 45 days after the accommodator closes on the replacement property.
The first part of your statement is incorrect. You do not need to invest in a fund. You can purchase a property yourself using your capital gain, you set up an LLC to take title, then you self certify at the end of the year designating The investment as an opportunity zone fund It's actually a pretty simple process.
You're actually both right. (Or wrong, depending on how abrasive you want my answer to read haha)
It DOES need to be purchased in a fund.
However you can create your own fund. It CAN be an LLC but it has to be a 2 person LLC (Partnership) or a Corporation.
Hi Natalie - as of right now the LLC can be a single member or even individual taxpayer. You can read about it here https://eig.org/opportunityzon...
All that being said the IRS has not provided final guidance yet and there is still more to come.
this is the actual draft form for certificationNo you can not.
The actual FUND needs to be a Partnership or corporation. This is from the link you shared
"
A qualified Opportunity Fund is any investment vehicle organized as a corporation or partnership with the specific purpose of investing in Opportunity Zone assets. The private sector is responsible for establishing Opportunity Funds.
"The 8996 form which you file to register as a fund is only available to partnerships or corporations.
A personal person or LLC can invest IN the fund. But the fund it's send needs to be a partnership or corporation.
Also we have the final guidance it was released last month"
IR-2019-212, December 19, 2019
WASHINGTON — The Internal Revenue Service today issued final regulations (PDF) providing details about investment in qualified opportunity zones (QOZ)."
You are correct the LLC needs to elect to be taxed as a corporation or partnership but it can be an S or C corporation so it can be an Individual single member LLC it does not have to be multiple members. You are saying it has to be a 2 person LLC and there is no such requirement right now. Here's the IRS website
https://www.irs.gov/newsroom/o...
This is a video on the IRS website saying theQOF can be an S corp and the LLC can elect to be taxed as an S corp with no multi member or owner requirements.
https://www.irsvideos.gov/Webi...
This is all good discussion by the way the rules and guidance have changed several times and are likely to change in the future but there will most likely not be any requirements that a QOF have multiple members.
- Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes6y
Originally posted by @Greg Dickerson:
Originally posted by @Natalie Kolodij:
Originally posted by @Greg Dickerson:
Originally posted by @Natalie Kolodij:
Originally posted by @Greg Dickerson:
Originally posted by @Peter Nikic:
Opportunity Zones can only be purchased through an Opportunity Zone Fund - You most likely won't do this.
1031 is probably the way to go for you. Here's some good info for you.
Top Ten Identification Rules for 1031 Exchanges
For a successful 1031 exchange, it is important to understand and comply with the 1031 exchange identification rules. These rules are not that complicated, but a failure to follow the rules may ruin your exchange. Here are the top ten things to remember when identifying replacement property in an exchange:
1. Deadline and General Rules.
The taxpayer has 45 days from the date that the relinquished property closes to identify the replacement property that he intends to acquire in the exchange. If there is more than one relinquished property in one exchange, the 45 days are measured from the date the first relinquished property closes. The property identified does not have to be under contract, and the taxpayer does not have to acquire everything that he identifies. It is important to note, however, that the taxpayer is not allowed to acquire anything other than the property that he has identified, and a failure to comply with the identification rules can ruin the whole exchange.
2. 3 Property Rule.
There are rules that limit how many properties the taxpayer may identify. In most cases taxpayers use the three property rule. The taxpayer may identify up to three replacement properties and may acquire one, two or all three of those.
3. 200% Rule.
If the taxpayer wants to identify more than three properties, he can use the 200% rule. This rule says that the taxpayer can identify any number of replacement properties, as long as the total fair market value of what he identifies is not greater than 200% of the fair market value of what was sold as relinquished property. First American Exchange recommends that taxpayers build in a “cushion” by identifying properties that are worth less than what is permitted, in case some properties are later determined to have a higher value than what was originally estimated.
4. 95% Rule.
There is another rule that is not commonly used by investors. The 95% rule says that a taxpayer can identify more than three properties with a total value that is more than 200% of the value of the relinquished property, but only if the taxpayer acquires at least 95% of the value of the properties that he identifies. Essentially, the taxpayer will need to acquire everything that he has identified to make this work, and that is why it is not relied on too often.
5. Property Acquired in 45 Day Period.
Any property that is actually acquired during the 45 day identification period is deemed to be properly identified. It’s important to note that if some property is acquired during this period and some property is acquired later using another one of the identification rules, the property acquired during the first 45 days needs to be counted as one identified property. For example, if you acquire one property during the first 45 days and you plan to use the 3 property rule and buy more properties after the 45 days, you only have two more properties to identify because you have already used up one.
6. Manner of Identification.
The identification must be in writing and signed by the taxpayer, and the property must be unambiguously described. This generally means that the taxpayer identifies either the address of the property or its legal description. A condo should have a unit number, and if the taxpayer is buying less than a 100% interest, the percentage share of what is being acquired should be noted.
7. Who Must Receive the Identification.
The taxpayer must send the identification notice either to:
1) The person obligated to transfer the replacement property to the taxpayer (such as the seller of the replacement property) or;
2) To any other person “involved” in the exchange (such as the qualified intermediary, escrow agent or title company), other than a “disqualified person,” such as an agent or family member of the taxpayer. Most identification notices are sent to the qualified intermediary.
8. Replacement Property Must be Same as What Was Identified.
The taxpayer must receive “substantially the same” property as he identified. The regulations contain four examples to illustrate what “substantially the same” means. In one example, the taxpayer identifies two acres of unimproved land and then acquires 1.5 acres of that land. The property acquired is substantially the same because what the taxpayer received was not different in nature or character from what was identified, and the taxpayer acquired 75% of the fair market value of the property identified. In another example, the taxpayer identifies a barn and two acres of land, and then acquires the barn with the land underlying the barn only. The IRS says that the property acquired was not substantially the same as the property identified because it differed in its basic nature or character.
9. Property to be Constructed.
If the replacement property is under construction at the time of identification, the taxpayer must include not only the address or legal description of the property, but also must include a description of what is to be constructed on the property.
10. Reverse Exchanges.
If the taxpayer is doing a reverse exchange where the accommodator acquires the replacement property before the taxpayer closes on the sale of the relinquished property, the taxpayer must identify in writing what he intends to sell and that identification must be sent no later than 45 days after the accommodator closes on the replacement property.
The first part of your statement is incorrect. You do not need to invest in a fund. You can purchase a property yourself using your capital gain, you set up an LLC to take title, then you self certify at the end of the year designating The investment as an opportunity zone fund It's actually a pretty simple process.
You're actually both right. (Or wrong, depending on how abrasive you want my answer to read haha)
It DOES need to be purchased in a fund.
However you can create your own fund. It CAN be an LLC but it has to be a 2 person LLC (Partnership) or a Corporation.
Hi Natalie - as of right now the LLC can be a single member or even individual taxpayer. You can read about it here https://eig.org/opportunityzon...
All that being said the IRS has not provided final guidance yet and there is still more to come.
this is the actual draft form for certificationNo you can not.
The actual FUND needs to be a Partnership or corporation. This is from the link you shared
"
A qualified Opportunity Fund is any investment vehicle organized as a corporation or partnership with the specific purpose of investing in Opportunity Zone assets. The private sector is responsible for establishing Opportunity Funds.
"The 8996 form which you file to register as a fund is only available to partnerships or corporations.
A personal person or LLC can invest IN the fund. But the fund it's send needs to be a partnership or corporation.
Also we have the final guidance it was released last month"
IR-2019-212, December 19, 2019
WASHINGTON — The Internal Revenue Service today issued final regulations (PDF) providing details about investment in qualified opportunity zones (QOZ)."
You are correct the LLC needs to elect to be taxed as a corporation or partnership but it can be an S or C corporation so it can be an Individual single member LLC it does not have to be multiple members. You are saying it has to be a 2 person LLC and there is no such requirement right now. Here's the IRS website
This is a video on the IRS website saying theQOF can be an S corp and the LLC can elect to be taxed as an S corp with no multi member or owner requirements.I don't need IRS links.
You can set up a corporation, or add an S corp election to an LLC to get a corporation
To have a partnership you need to have 2 or more people on an LLC. That's literally the only way to get a partnership.
So again
You were wrong- the Fund can not be a single member LLC or an individual. It needs to be an LLC with EITHER 2 people, or an election to be taxed as a corporation. Which are all different than just an SMLLC.
- Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes6y
Originally posted by @Natalie Kolodij:
Originally posted by @Greg Dickerson:
Originally posted by @Natalie Kolodij:
Originally posted by @Greg Dickerson:
Originally posted by @Natalie Kolodij:
Originally posted by @Greg Dickerson:
Originally posted by @Peter Nikic:
Opportunity Zones can only be purchased through an Opportunity Zone Fund - You most likely won't do this.
1031 is probably the way to go for you. Here's some good info for you.
Top Ten Identification Rules for 1031 Exchanges
For a successful 1031 exchange, it is important to understand and comply with the 1031 exchange identification rules. These rules are not that complicated, but a failure to follow the rules may ruin your exchange. Here are the top ten things to remember when identifying replacement property in an exchange:
1. Deadline and General Rules.
The taxpayer has 45 days from the date that the relinquished property closes to identify the replacement property that he intends to acquire in the exchange. If there is more than one relinquished property in one exchange, the 45 days are measured from the date the first relinquished property closes. The property identified does not have to be under contract, and the taxpayer does not have to acquire everything that he identifies. It is important to note, however, that the taxpayer is not allowed to acquire anything other than the property that he has identified, and a failure to comply with the identification rules can ruin the whole exchange.
2. 3 Property Rule.
There are rules that limit how many properties the taxpayer may identify. In most cases taxpayers use the three property rule. The taxpayer may identify up to three replacement properties and may acquire one, two or all three of those.
3. 200% Rule.
If the taxpayer wants to identify more than three properties, he can use the 200% rule. This rule says that the taxpayer can identify any number of replacement properties, as long as the total fair market value of what he identifies is not greater than 200% of the fair market value of what was sold as relinquished property. First American Exchange recommends that taxpayers build in a “cushion” by identifying properties that are worth less than what is permitted, in case some properties are later determined to have a higher value than what was originally estimated.
4. 95% Rule.
There is another rule that is not commonly used by investors. The 95% rule says that a taxpayer can identify more than three properties with a total value that is more than 200% of the value of the relinquished property, but only if the taxpayer acquires at least 95% of the value of the properties that he identifies. Essentially, the taxpayer will need to acquire everything that he has identified to make this work, and that is why it is not relied on too often.
5. Property Acquired in 45 Day Period.
Any property that is actually acquired during the 45 day identification period is deemed to be properly identified. It’s important to note that if some property is acquired during this period and some property is acquired later using another one of the identification rules, the property acquired during the first 45 days needs to be counted as one identified property. For example, if you acquire one property during the first 45 days and you plan to use the 3 property rule and buy more properties after the 45 days, you only have two more properties to identify because you have already used up one.
6. Manner of Identification.
The identification must be in writing and signed by the taxpayer, and the property must be unambiguously described. This generally means that the taxpayer identifies either the address of the property or its legal description. A condo should have a unit number, and if the taxpayer is buying less than a 100% interest, the percentage share of what is being acquired should be noted.
7. Who Must Receive the Identification.
The taxpayer must send the identification notice either to:
1) The person obligated to transfer the replacement property to the taxpayer (such as the seller of the replacement property) or;
2) To any other person “involved” in the exchange (such as the qualified intermediary, escrow agent or title company), other than a “disqualified person,” such as an agent or family member of the taxpayer. Most identification notices are sent to the qualified intermediary.
8. Replacement Property Must be Same as What Was Identified.
The taxpayer must receive “substantially the same” property as he identified. The regulations contain four examples to illustrate what “substantially the same” means. In one example, the taxpayer identifies two acres of unimproved land and then acquires 1.5 acres of that land. The property acquired is substantially the same because what the taxpayer received was not different in nature or character from what was identified, and the taxpayer acquired 75% of the fair market value of the property identified. In another example, the taxpayer identifies a barn and two acres of land, and then acquires the barn with the land underlying the barn only. The IRS says that the property acquired was not substantially the same as the property identified because it differed in its basic nature or character.
9. Property to be Constructed.
If the replacement property is under construction at the time of identification, the taxpayer must include not only the address or legal description of the property, but also must include a description of what is to be constructed on the property.
10. Reverse Exchanges.
If the taxpayer is doing a reverse exchange where the accommodator acquires the replacement property before the taxpayer closes on the sale of the relinquished property, the taxpayer must identify in writing what he intends to sell and that identification must be sent no later than 45 days after the accommodator closes on the replacement property.
The first part of your statement is incorrect. You do not need to invest in a fund. You can purchase a property yourself using your capital gain, you set up an LLC to take title, then you self certify at the end of the year designating The investment as an opportunity zone fund It's actually a pretty simple process.
You're actually both right. (Or wrong, depending on how abrasive you want my answer to read haha)
It DOES need to be purchased in a fund.
However you can create your own fund. It CAN be an LLC but it has to be a 2 person LLC (Partnership) or a Corporation.
Hi Natalie - as of right now the LLC can be a single member or even individual taxpayer. You can read about it here https://eig.org/opportunityzon...
All that being said the IRS has not provided final guidance yet and there is still more to come.
this is the actual draft form for certificationNo you can not.
The actual FUND needs to be a Partnership or corporation. This is from the link you shared
"
A qualified Opportunity Fund is any investment vehicle organized as a corporation or partnership with the specific purpose of investing in Opportunity Zone assets. The private sector is responsible for establishing Opportunity Funds.
"The 8996 form which you file to register as a fund is only available to partnerships or corporations.
A personal person or LLC can invest IN the fund. But the fund it's send needs to be a partnership or corporation.
Also we have the final guidance it was released last month"
IR-2019-212, December 19, 2019
WASHINGTON — The Internal Revenue Service today issued final regulations (PDF) providing details about investment in qualified opportunity zones (QOZ)."
You are correct the LLC needs to elect to be taxed as a corporation or partnership but it can be an S or C corporation so it can be an Individual single member LLC it does not have to be multiple members. You are saying it has to be a 2 person LLC and there is no such requirement right now. Here's the IRS website
This is a video on the IRS website saying theQOF can be an S corp and the LLC can elect to be taxed as an S corp with no multi member or owner requirements.I don't need IRS links.
You can set up a corporation, or add an S corp election to an LLC to get a corporation
To have a partnership you need to have 2 or more people on an LLC. That's literally the only way to get a partnership.
So again
You were wrong- the Fund can not be a single member LLC or an individual. It needs to be an LLC with EITHER 2 people, or an election to be taxed as a corporation. Which are all different than just an SMLLC.
Literally what I said above "
However you can create your own fund. It CAN be an LLC but it has to be a 2 person LLC (Partnership) or a Corporation.
" - Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes6y
@Natalie Kolodij I am only interested in clearing this up for those following. The IRS website and rules say the QOF must be a either a Corporation or Partnership not both. A QOF can be an LLC electing to be taxed as a C or S corp. LLC can be single member and a corporation can be owned by an individual.
Please show us where the IRS rules require that a Corporation or LLC requires multiple members or owners. I can not find any language to back that up.
- Specialist · Cleveland, OH · Member since 2018 · 1k+ posts · 666 votes6y
@Lisa Hill where is the property located ?
- Real Estate Agent · Santa Barbara, CA · Member since 2016 · 518 posts · 283 votes6y
@Lisa Hill there is a publicly traded reit, that primarily invests in opportunity zones. I can't remember the exact name but I think it is Belpointe REIT, if not it's something very close to that. You can still get the tax deferral by investing in there stock. I would call there investor relations team to make sure you do everything properly to get those tax benefits. Also I'm not a CPA so verify this information with some licensed.
- Investor · San Francisco, CA · Member since 2016 · 338 posts · 444 votes6y
@Janet Hill, Just to approach your question from a less-technical perspective, my take as an investor is this:
1031 is better for real estate investors like 99% of the time, whereas OZ funds are more beneficial for people selling stocks. Aside from the complications that people have already pointed out with OZ funds, the 1031 is easier to understand and more established. Most real estate investors already have or have the option to release our original equity through mortgages and then defer capital gains for the rest of our life through a 1031.
The only advantages I see for OZ's are if you have access to amazing development or value add opportunities that fall within all the guidelines and the ability to execute within the designated timeline. Or, perhaps you have a property that has appreciated a great deal, but that you can't get a loan that would return the original equity you invested (happens all the time in places like the Bay Area), and you really need/want some cash back in your pocket.
The other scenario I've thought about is if you're really tired of being an active landlord and are looking to move to syndications, then this would be a pretty unique time to transition via an OZ syndication. However, you'd really need to do your due diligence because there are a lot of syndicators pretending to know more than they do about OZ's. It adds a layer of risk above other options for having someone else manage your money.
In any case, if all these thoughts are overkill, just ignore and choose the 1031...
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