Investing in Opportunity zone without a fund

4 Replies

I'm closing on a house next week that happens to be in an opportunity zone. I will be doing substantial work on the house - my rehab budget is larger than the cost of the house. I also have lots of unrealized capital gains in the stock market at the moment, so I'm trying to figure out how to take advantage of the OZ. I was planning on closing in my personal name so I could get a Fannie/Freddie loan when I go to refi in a few months. Everything I see on OZs talks about investing in a fund, however I don't want to invest in a fund - I want to invest directly in the property. So two questions:

1 - Can I buy the house as an individual using my using capital gains and defer the taxes, or must I create a QOF to purchase the house?

2 - If the answer to #1 is that I must create a QOF, then what's the simplest way to go about this? Since the QOF must file IRS form 8996 I assume it must file its own tax returns, so a disregarded entity like a single member llc will not be good enough. Do I need to create a C or S corp? What's the easiest way to do this given that I'll be using all my own money?

3 - Given that the answer to #2 is probably still somewhat complicated and time consuming, are there firms or individuals popping up yet who will do it all for me? (including filing the IRS forms, etc.)? 

@Ari Bachrach

Needs to be held in either a partnership or corporate tax entity that self certifies as a QOF.

Don't try to DIY this, there are requirements and deadlines on both the investor side and the fund side that need to be met.  Hire a CPA/EA that is very comfortable with 1400Z-2.

You can't have it without a fund. 

Typically don't want property in a corp so I'd recommend a 1065 partnership return, having that become a fund. 


I agree with Eamonn you'll want a tax pro to handle this filing- it's new and messy.


@Ari Bachrach -- echo what Eamonn and Natalie said.  Partnership doesn't have to be 50/50 -- I have a number of clients who have structured the partnership 99.9% - 0.1% in a manager-managed entity, so they retain the lion's share of profit interests and control, but still have a good partnership for IRS purposes.  Assuming your contract is assignable, its definitely possible to get a fund up and running and assign the contract to your QOF prior to closing.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here