Opportunity fund & zones. New 2017 tax law
Rental Property Investor · New York, NY · Member since 2011 · 98 posts · 10 votes
@Raza Rizvi
The short answer is Yes a SFR, duplex, etc still qualifies under the regulation. The main requirement is that any property purchased in an opportunity zone must be purchased through an Opportunity zone fund.
Now, this can be a single entity fund or a fund can be set up for the sole purpose of investing in these type of properties. The type of fund you will need is going to depend on your investing strategy.
A couple of things to keep in mind. A fund has to have at minimum 90% of its assets located within a qualified opportunity zone. Also, remember the longer you hold the property, the larger the tax break.
Qualified opportunity zones hold their designation for a maximum of 10 years. Now, I believe if you sell a QOZ property and invest the capital gains from that sale into another QOZ, taxes can be deferred as long as deferment doesn’t exceed 10 years.
From my understanding, taxes can only be deferred for a max of 10 years. The program will be in place until 2047. Therefore, don’t feel rushed to find properties. Take you time to understand the program. Talk to a good lawyer and CPA who work with real estate investors and understand the regulation.
The final publication of the regulation should be posted in the Federal Registry soon. Which will clear up a lot of pending questions.
My development firm is doing a lot of work in this area. We develop our own deals as well as provide consulting services to our clients and partners. But we’re more into the Commercial/ Apartment sector. I hope this helps. Feel free to reach out to me with any questions.
@Raza Rizvi
The short answer is Yes a SFR, duplex, etc still qualifies under the regulation. The main requirement is that any property purchased in an opportunity zone must be purchased through an Opportunity zone fund.
Now, this can be a single entity fund or a fund can be set up for the sole purpose of investing in these type of properties. The type of fund you will need is going to depend on your investing strategy.
A couple of things to keep in mind. A fund has to have at minimum 90% of its assets located within a qualified opportunity zone. Also, remember the longer you hold the property, the larger the tax break.
Qualified opportunity zones hold their designation for a maximum of 10 years. Now, I believe if you sell a QOZ property and invest the capital gains from that sale into another QOZ, taxes can be deferred as long as deferment doesn’t exceed 10 years.
From my understanding, taxes can only be deferred for a max of 10 years. The program will be in place until 2047. Therefore, don’t feel rushed to find properties. Take you time to understand the program. Talk to a good lawyer and CPA who work with real estate investors and understand the regulation.
The final publication of the regulation should be posted in the Federal Registry soon. Which will clear up a lot of pending questions.
My development firm is doing a lot of work in this area. We develop our own deals as well as provide consulting services to our clients and partners. But we’re more into the Commercial/ Apartment sector. I hope this helps. Feel free to reach out to me with any questions.
@Raza Rizvi
The short answer is Yes a SFR, duplex, etc still qualifies under the regulation. The main requirement is that any property purchased in an opportunity zone must be purchased through an Opportunity zone fund.
Now, this can be a single entity fund or a fund can be set up for the sole purpose of investing in these type of properties. The type of fund you will need is going to depend on your investing strategy.
A couple of things to keep in mind. A fund has to have at minimum 90% of its assets located within a qualified opportunity zone. Also, remember the longer you hold the property, the larger the tax break.
Qualified opportunity zones hold their designation for a maximum of 10 years. Now, I believe if you sell a QOZ property and invest the capital gains from that sale into another QOZ, taxes can be deferred as long as deferment doesn’t exceed 10 years.
From my understanding, taxes can only be deferred for a max of 10 years. The program will be in place until 2047. Therefore, don’t feel rushed to find properties. Take you time to understand the program. Talk to a good lawyer and CPA who work with real estate investors and understand the regulation.
The final publication of the regulation should be posted in the Federal Registry soon. Which will clear up a lot of pending questions.
My development firm is doing a lot of work in this area. We develop our own deals as well as provide consulting services to our clients and partners. But we’re more into the Commercial/ Apartment sector. I hope this helps. Feel free to reach out to me with any questions.
@Raza Rizvi
Hey Raza, I just wanted to step in and clarify some things. You don't have to improve the property by the purchase price, just the building value. So the formula should look like this (Purchase price-land value=substantial improvement amount). The renovation amounts can come from capital gains, that is totally fine and probably simplifies things.
The Deferral is also not for 10 years, the original gain will come due December 31, 2026, or upon sale of the property, (Unless you reinvest in another Qualified Fund as you mentioned).
You can hold the property until the end of 2048 with all gains made after the Qualified investment being tax-free.
Thank you @Tanner Crawley for your clarification. This all really helps
@Tanner Crawley
Thanks for the clarification. I read through the regulation a few times and still had a few questions around the deferral period. So, from what you’ve stated, all investments within an opportunity zone must be made by 2026 to receive the deferral benefit of the original? After 2026, I believe the QOZ designation goes away, but any investors who invested in these properties will still receive the tax “benefits “ up until 2047 or until the property is sold, whichever comes first. Does this align with your understanding?
My other question is let’s say it’s 2028 and I sell one property in a QOZ but I invest the gains , into another QOZ project. How would the funds be treated? I was under the impression, capital gains tax would have to be paid on the on the original amount, but any additional gains after awards would be tax free.
Thank you for the our time
@Tanner Crawley
Thanks for the clarification. I read through the regulation a few times and still had a few questions around the deferral period. So, from what you’ve stated, all investments within an opportunity zone must be made by 2026 to receive the deferral benefit of the original? After 2026, I believe the QOZ designation goes away, but any investors who invested in these properties will still receive the tax “benefits “ up until 2047 or until the property is sold, whichever comes first. Does this align with your understanding?
My other question is let’s say it’s 2028 and I sell one property in a QOZ but I invest the gains , into another QOZ project. How would the funds be treated? I was under the impression, capital gains tax would have to be paid on the on the original amount, but any additional gains after awards would be tax free.
Thank you for the our time
Yes, to receive the deferral you must invest before 2026 because that is when the capital gain becomes due. The tax exemption going forward can last until 2047 as you mentioned. You can sell a property in a QOZ and the tax doesn't come due if you roll it into another QOZ property, but both have to be owned by the same Qualified fund.
@Tanner Crawley
And there’s the catch. Thank you for clearing this up for me. It really helps.
@Canesha Edwards
Happy to help!
Hey @Tanner Crawley thanks for answering all these great questions! You seem to really know your stuff. One more thing to clarify-- I was under the impression that so long as the fund holds onto a property for at least 10 yrs if they sell it after that they're not taxed on the appreciation of that property. When you say the deferral that comes due in 2026, that's in regards to the cap gains deferral on the sale of your stock (assuming that's the asset you're liquidating to start the fund), right?
Finally, I've had a hard time figuring out addresses based on census tract numbers that are QOZ designated areas. Do you know of any sources for this?
Would love to connect if you specialize in locating properties that are QOZ areas. Colorado is a great market and I have family that lives there. Thanks!
Hey @Tanner Crawley thanks for answering all these great questions! You seem to really know your stuff. One more thing to clarify-- I was under the impression that so long as the fund holds onto a property for at least 10 yrs if they sell it after that they're not taxed on the appreciation of that property. When you say the deferral that comes due in 2026, that's in regards to the cap gains deferral on the sale of your stock (assuming that's the asset you're liquidating to start the fund), right?
Finally, I've had a hard time figuring out addresses based on census tract numbers that are QOZ designated areas. Do you know of any sources for this?
Would love to connect if you specialize in locating properties that are QOZ areas. Colorado is a great market and I have family that lives there. Thanks!
Correct. The 2026 deadline is on the initial capital gain. Any gains made after the oz investment can be entirely tax exempt so long as they are held 10+ years. There are some good resources for identifying which properties are within zones. I’ll send some over tomorrow! I’d love to connect and help you find a good OZ investment here in CO.
Hey @Tanner Crawley thanks for answering all these great questions! You seem to really know your stuff. One more thing to clarify-- I was under the impression that so long as the fund holds onto a property for at least 10 yrs if they sell it after that they're not taxed on the appreciation of that property. When you say the deferral that comes due in 2026, that's in regards to the cap gains deferral on the sale of your stock (assuming that's the asset you're liquidating to start the fund), right?
Finally, I've had a hard time figuring out addresses based on census tract numbers that are QOZ designated areas. Do you know of any sources for this?
Would love to connect if you specialize in locating properties that are QOZ areas. Colorado is a great market and I have family that lives there. Thanks!
Correct. The 2026 deadline is on the initial capital gain. Any gains made after the oz investment can be entirely tax exempt so long as they are held 10+ years. There are some good resources for identifying which properties are within zones. I’ll send some over tomorrow. I’d love to connect and help you find a good OZ investment here in CO!
@Tanner Crawley Really useful information above. Have few other questions.
1) Can the property being bought by the fund be financed and the fund still eligible for tax gain deferrals on the amount invested from it?
2) If the asset is financed, does it also reduce the requirement for substantial improvement? For eg: property purchased for 100k with 50k from the OZ fund. Does it mean the fund still need to make 100k in substantial improvements or just 50k (ignoring land value for this example).