All Forum Posts by: Drew Reynolds

They'll want to work with their CPA, but in general, yes, the taxes would be due, but there are options: https://apiexchange.com/seller...

Setting up a QOZ Fund is not all that difficult.  IRS guidance allows for self certification.  A QOZ Fund simply needs to fill out paperwork and include it with their annual federal tax filing.  Note, however, that if you are attempting to raise capital from other investors, a QOZ Fund is classified as a security, not a real estate interest - it is highly recommended to consult your CPA and attorney before raising capital from others.

If you invest in a QOF fund that does not adhere to the up-front or on-going requirements, an investor potentially opens themselves up to taxes on the previously deferred capital gains/recapture and potentially to penalties.  This may be especially problematic if the funds are now tied up in an illiquid real estate project. 

Like an investment, doing your upfront due diligence is key.  

Pros and cons to everything.  The tax benefits are obviously very strong for QOZ programs.  However, it is important for investors to consider their own risk tolerances and investment objectives and not just focus on tax benefits.  For instance, by nature, most (though certainly not all) QOZ funds will be investing in "up and coming" areas, wheres there are no geographical constraints to a traditional 1031 investments.  Additionally, and perhaps and even bigger factor, is that all QOZ real estate investments will involve either ground-up development or "substantial improvement".  A 1031 on the other hand may allow an investor to invest in a stabilized asset.  No right or wrong answer here, just important to understand the risk/reward trade-off. 

QOZ Funds may be self certified.  There is no pre-approval or verification by the IRS is required. In order to self-certify, a QOZ Fund simply completes a form and includes that certification document along with the QOZ Fund's federal income tax return filing for the year.  Please note, however, that if you are planning on raising a fund, those interests are categorized as securities, which has a different set of rules than real estate.  As always, it is highly recommended you consult a CPA and attorney.  

@Jill Curran - It's important to note that only the investment of gains from any capital asset sale (or exchange) is eligible for the benefits of a QOZ fund.  For example, let's say you bought stock a few years ago for $100K and sell it today for $200K.  Only the proceeds attributed to gains are eligible for OZP benefits - that is the $100K of capital gains, not the full $200K.  Investors may invest non-gain monies into a QOZ fund, but there is no tax advantages to non-gains contributions.  

Investment in a Qualified Opportunity Zone Fund is the closest comparable.  www.qualifedopportunityzones.com

@Joseph M., our pal, @Dave Foster is (as always) correct. Generally speaking, the only 2 legal entities that allow multiple investors to pool 1031 exchange proceeds are the Tenant-in-Common (TIC) and Delaware Statutory Trust (DST). The closest thing to a "fund" with 1031 exchange proceeds would be for an investor to make several smaller investments in DSTs, perhaps even focusing on DSTs which own multiple properties - in a way, creating your own "fund". Of course, this will still somewhat be limited by the amount of exchange proceeds available and may result in needing to manage several exchange "rollovers" in the future. TICs and DSTs work for a lot of investors, but they (like any investment) are certainly not a "one size fits all".

Thanks @PJ Kolnik.  The thought behind the self-certification is to eliminate "red tape".  Since the program has a relatively short window (until the 12/31/26 date with taxes due), Congress wants to eliminate administrative backlog to approving investment/projects.  However, keep in mind that on-going certification is also required for these funds.  The funds will be required to report twice a year and are required to invest at least 90% of capital into qualified projects in qualified zones.  Failure to do so will result in penalties and possible de-certification for continued violation (and potentially big tax problems for investors).  Also, we're hearing that interests in QOZ funds may be classified as securities, which adds a certain barrier and oversight to it.  The short of it is that small, one-off projects with "friends-and-family" investors will be able to organize quickly with minimal administrative burden.  The successful larger funds are likely to be more buttoned-up (full blown securities offerings, tax opinions, structured fund governance, etc.).  Note however, as has been repeated numerous times here - the QOZ concept is still not finalized - we are awaiting clarification from Congress on several points and all this could change.  To be continued....      

As of now, we understand that the IRS is allowing self-certification of Qualified Opportunity Funds. To self-certify, a taxpayer merely completes a form (which will be released in the summer of 2018), and attaches that form to the taxpayer’s federal income tax return for the taxable year. Consequently, no approval or action by the IRS is required to certify a taxpayer. The IRS also says it will provide more details and additional legal guidance over the next few months.

https://www.qualifiedopportunityzones.com/blog

We are just beginning to see the very first QOF’s form, however there are not many yet. The U.S. Treasury Department and Internal Revenue Service are working on QOF guidelines and regulations. As of now, we understand that the IRS is allowing self-certification of Qualified Opportunity Funds. To self-certify, a taxpayer merely completes a form (which will be released in the summer of 2018), and attaches that form to the taxpayer’s federal income tax return for the taxable year. Consequently, no approval or action by the IRS is required to certify a taxpayer. The IRS also says it will provide more details and additional legal guidance over the next few months.