Qualified Opportunity Zones, a late add to the 2017 Tax Code, are designed to stimulate neighborhoods in need of investment.
Kathy Fettke, author, investor, syndicator and host of RealWealth Show Podcast shares her views on the new tax law. For investors with capital gains who are looking for a way to lessen their tax liability, this just might be the answer to your prayer.
Markets cycles are affected by supply, demand, interest rates, etc. When needed, the tax code is a proven tool the government can use to stimulate growth and change the behavior of investors. Opportunity Zones are the newest iteration for investors looking to lessen their taxes and get a better than average return on their investment.
Have a Capital Gain?
Do you have an unrealized capital gain? Unlike 1031 Exchange, the Qualified Opportunity Zone is not exclusive to real estate investors. All investors, who have taxable gains from the sale of stocks, bonds, business, real estate, etc are eligible. You have up to 180 days from the sale that caused the gain to invest in an opportunity zone fund.
The opportunity zones are in neighborhoods needing a jumpstart. New investment will likely not be a cash flow opportunity. Instead, over time, the expectation would be for significant appreciation. It takes time to improve a neighborhood. The goal is to find a neighborhood with momentum that will attract other investors. If you find this, and you can be patient, the reward will be worth it.
Disclaimer: The information presented is is for discussion purposes only.
The QOZ details are developing. It is up to YOU to engage a tax professional for advice on how to proceed and benefit.
Where are the QOZ?
There are over 8,000 qualified Opportunity Zones in the US. States had 90 days from the date of the act to apply to the US Treasury for zone status. To find one near you do an internet search, “opportunity zone map”, or click: ttps://www.cdfifund.gov/Pages/Opportunity-Zones.aspx
How Qualified Opportunity Zone Works
- To qualify, you must have taxable gains. Ordinary income is not eligible.
- Taxes on the original gain are deferred. If you stay in the investment for 5 yrs and get a 10% discount on the tax owed. Stay in the investment for 7 years, you you get a 15% discount on the taxes due, and 7 years to pay them.
- Bonus: if you stay in your new investment for 10 years, the subsequent gain on the new investment is TAX FREE; not subject to Capital Gains TAX!
- So far, the use of a Qualified Intermediary is not recognized as a requirement.
- Your gains must be placed in a “Qualified Opportunity Zone Fund”. This can be your fund, or in another’s fund, just not a single member LLC.
- The “fund” must invest in a property located in a designated QOZ.
- The property must be improved. You can do new construction, or substantially improve an existing building. Substantial improvement example:
Purchase Price: $1,000,000
Land value: -$ 500,000
Existing Structure Value: $ 500,000
Investment required to be substantial: $500,000
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