LLC as Opportunity Fund - Pros and Cons ?

4 Replies

Hi All,

Back in February of this year, I purchased a rental home in an Opportunity Zone. I had been reading about Opportunity Zones at the time and understood that they would drive investment into the area and create a good opportunity. I didn't use any funds from a previous investment, but I deed the property into a sole proprietor LLC, specifically set up for this property. I understand from reading the FAQ on the IRS's website that " A LLC that chooses to be treated either as a partnership or corporation for federal tax purposes can organize as a Qualified Opportunity Fund ", however, I'm wondering if I should go forward with that filing strategy?


I'd appreciate any insight here and perhaps pros/cons of being treated either as a partnership or corporation for federal taxes in my scenario.


Thanks!

 

@Thomas Hatley True, you could add a partner to your LLC and self-certify as an Opportunity Fund. However, OZ benefits only accrue to investments of deferred capital gain equity. Since you bought the property with non-capital gain equity, you wouldn't be eligible for any OZ benefits on your current investment. If you intend to fund "substantial improvement" of the property with deferred gain equity, then you may be able to enjoy OZ benefits on that portion of the investment.

Without knowing all the details, I'm inclined to think that it probably wouldn't be worth it to try to make your current entity work as an OZ fund.  But if you decide to buy others in the area, could certainly be worth structuring/capitalizing it to take advantage of OZ benefits for those acquisitions.

Originally posted by @Scott McIntosh :

@Thomas Hatley True, you could add a partner to your LLC and self-certify as an Opportunity Fund. However, OZ benefits only accrue to investments of deferred capital gain equity. Since you bought the property with non-capital gain equity, you wouldn't be eligible for any OZ benefits on your current investment. If you intend to fund "substantial improvement" of the property with deferred gain equity, then you may be able to enjoy OZ benefits on that portion of the investment.

Without knowing all the details, I'm inclined to think that it probably wouldn't be worth it to try to make your current entity work as an OZ fund.  But if you decide to buy others in the area, could certainly be worth structuring/capitalizing it to take advantage of OZ benefits for those acquisitions.

 Thanks @Scott McIntosh,

I do indeed expect to invest about $55k in renovations (purchased the home for $100k) within the next 18 months or so.

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