Selling to invest in Opportunity Zones

[Kelly Putz]

10 years as a Realtor and there is still so much to learn! As a member of my local Economic Development Council, I recently started learning about Opportunity Zones. It was a little hard to grasp at first, but after attending a few seminars and talking with a trusted CPA I think I finally have a handle on it.

If you don't know what they are, Google them and you'll get maps and all kinds of web sites of investment companies and financial advisors telling you about joining a fund to invest in them, but it's much simpler than that. Here is a link to the IRS site with some informative FAQs.

https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions

In a nutshell, Opportunity Zones were created in all 50 states, DC and the U.S. territories to generate economic growth in rural and lower income areas, both commercial and residential, by encouraging investment in those areas. Investing in an Opportunity Zone allows an investor to reduce, or completely erase, federal capital gains tax on the sale of a property, stocks, etc. depending on how long the purchased property is held. It's a little similar to a 1031 exchange, but there's no intermediary needed and no escrow that has to be set up. In a 1031 exchange, you can only defer the tax, but if you hold an Opportunity Zone investment for at least 10 years, the tax is erased AND so is any capital gains on the appreciated value of the property when it is eventually sold. You only have to make the purchase or investment within 180 days of creating the capital gains event under an S-Corp or partnership LLC, and you self-certify with the IRS when filing your taxes. If you sold a property or stock in 2018 and bought a hold property, so long as it's in a partnership LLC or and S-Corp, it's worth it to check and see if that property is in an Opportunity Zone, because you can also refile your taxes to take advantage.

My husband and I had been looking at a large buy and hold property and knew we needed to sell one of our first investment properties to have the down and closing, but when we discovered it was in an Opportunity Zone that made our minds up because we could avoid the considerable federal capital gains tax that was going to be created by the sale of our smaller property. What's MORE is that the property we are selling is ALSO in an Opportunity Zone, so the new buyer gets to take advantage of that. Because of this, we are now planning to sell a second property to invest in a TBD Opportunity Zone property. Maybe we'll buy a small hotel in Puerto Rico? The entire island is a designated Opportunity Zone!

So now, I also have a way to convince owners of vacant buildings in our local downtown area (who have only been hanging onto these empty buildings as a tax write off, to the city leaders' eternal frustration) to sell their Opportunity Zone properties and allow for more economic growth in town, then reinvest their proceeds in another Opportunity Zone property, so they can create economic growth there, as well as take advantage of the tax reduction or erasure.