Opportunity Zone w/ Cash - No CG Deferral

9 Replies

Can the OZ benefit be applied to an investor that's just using cash to create the fund vs. rolling over/deferring capital gains tax from some other REI sale? I.e., cash from scratch in fund vs cash from REI proceeds...? I'd assume the 10% and 15% reduction in CG wouldn't be applicable, but I'm wondering if the 10+ year hold would lead to zero capital gains tax.

Originally posted by @Aaron Moayed :

Can the OZ benefit be applied to an investor that's just using cash to create the fund vs. rolling over/deferring capital gains tax from some other REI sale? I.e., cash from scratch in fund vs cash from REI proceeds...? I'd assume the 10% and 15% reduction in CG wouldn't be applicable, but I'm wondering if the 10+ year hold would lead to zero capital gains tax.

You do not get the preferred treatment for the normal investment. Only the capital gain gets the preferred treatment. 

If your investment include both capital gain and other investment(most of the investment do), they are tracked as two different groups to apply the preferred treatment to only the cap gain group when you exit or report the gain. 

Originally posted by @Ashish Acharya :
Originally posted by @Aaron Moayed:

Can the OZ benefit be applied to an investor that's just using cash to create the fund vs. rolling over/deferring capital gains tax from some other REI sale? I.e., cash from scratch in fund vs cash from REI proceeds...? I'd assume the 10% and 15% reduction in CG wouldn't be applicable, but I'm wondering if the 10+ year hold would lead to zero capital gains tax.

You do not get the preferred treatment for the normal investment. Only the capital gain gets the preferred treatment. 

If your investment include both capital gain and other investment(most of the investment do), they are tracked as two different groups to apply the preferred treatment to only the cap gain group when you exit or report the gain. 

 Ashish, this applies even in the 10+ year hold setting (i.e., I create a QOF from raw cash not tax-deferred cash and hold for 10 years) for CG-free sale?

Originally posted by @Aaron Moayed :
Originally posted by @Ashish Acharya:
Originally posted by @Aaron Moayed:

Can the OZ benefit be applied to an investor that's just using cash to create the fund vs. rolling over/deferring capital gains tax from some other REI sale? I.e., cash from scratch in fund vs cash from REI proceeds...? I'd assume the 10% and 15% reduction in CG wouldn't be applicable, but I'm wondering if the 10+ year hold would lead to zero capital gains tax.

You do not get the preferred treatment for the normal investment. Only the capital gain gets the preferred treatment. 

If your investment include both capital gain and other investment(most of the investment do), they are tracked as two different groups to apply the preferred treatment to only the cap gain group when you exit or report the gain. 

 Ashish, this applies even in the 10+ year hold setting (i.e., I create a QOF from raw cash not tax-deferred cash and hold for 10 years) for CG-free sale?

 Yes for 10 year permanent avoidance as well. 

Originally posted by @Aaron Moayed :

Can the OZ benefit be applied to an investor that's just using cash to create the fund vs. rolling over/deferring capital gains tax from some other REI sale? I.e., cash from scratch in fund vs cash from REI proceeds...? I'd assume the 10% and 15% reduction in CG wouldn't be applicable, but I'm wondering if the 10+ year hold would lead to zero capital gains tax.

NO

I see. Can you cite the tax code for this, or a .gov link stating this?

Also, do you know if depreciation recapture tax is avoided at the end of the 10-year hold (assuming we used a QOF with tax deferred cash)?

Originally posted by @John Woodrich :
Originally posted by @Aaron Moayed:

Can the OZ benefit be applied to an investor that's just using cash to create the fund vs. rolling over/deferring capital gains tax from some other REI sale? I.e., cash from scratch in fund vs cash from REI proceeds...? I'd assume the 10% and 15% reduction in CG wouldn't be applicable, but I'm wondering if the 10+ year hold would lead to zero capital gains tax.

NO

 THANK YOU

@Aaron Moayed . I had this same question as it’s never addressed in most OZ discussions since the major benefit applies to existing CGs toward purchase. I spoke to Anderson Advisors recently and was told the appreciation cap gains would be tax free after the 10year hold for cash buyers too.

Originally posted by @Shannon Witters :

@Aaron Moayed. I had this same question as it’s never addressed in most OZ discussions since the major benefit applies to existing CGs toward purchase. I spoke to Anderson Advisors recently and was told the appreciation cap gains would be tax free after the 10year hold for cash buyers too.

 Hmm. Check the second-to-last response here by Michael Plaks:

https://www.biggerpockets.com/forums/51-tax-legal-issues-contracts-self-directed-ira/topics/719600-real-estate-cpa-website-article-garbage-depreciation-recap-oppzo?page=1#p4244113

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