Private equity proceeds into real estate tax free?

[Jon Blackburn]

I’ve seen some posts on using stock proceeds, without a tax hit, to invest in real estate. I can’t tell if my situation is different, though, so thought I’d ask. My employer gave me shares of company stock (company is owned by private equity firm, not publicly traded). When the company is sold to another firm, I’ll receive the value of the stock. I’ve never been through this before...is my capital gain the entire sum of money since I’ve invested none of my own funds? Is there a way to invest all/most of the money into investment properties and delay paying taxes? I’ll obviously consult a tax professional soon, but figure others on BP may have crossed this bridge already!

[Natalie Kolodij]

@Jon Blackburn 

There are a few ways employers can issue stock so more informaiton would need to be known there. 

Capital gain would be the sale price (less) your basis 

And you can sell this and defer gains via a Qualified Opportunity Zone. 

[Jon Blackburn]

@Natalie Kolodij Thanks! Now I just need to figure out if it’s worth it...was reading you can self identify as a fund, but only under a partnership or corporation. As someone looking to get started wIth BRRRR, I’m wondering if that makes things harder than going the individual route with conventional financing.

[Natalie Kolodij]

@Jon Blackburn 

Don't have to invest into a fund- can just invest in a regular house as well. Like with a 1031. 

[Matt Ward]

Hi @Jon Blackburn, @Natalie Kolodij is spot on. If you sell that stock and the result is a $100k capital gain, you would pay capital gain tax rates on that when you file your tax return. However, if you take that gain and invest it into a property in one of the identified 'Qualified Opportunity Zones', and you hold that property for at least 10 years, the cap gain goes away. This could be an apartment, duplex, SFH... as long as it's in a zone. I believe you have 180 days from the day you sell your stock to redeploy those funds into a property. You can also seek out a 'Qualified Opportunity Fund' which is basically a syndication with the underlying asset being in one of these zones. This is of course a much more passive investment. Depending on what you're looking to do, one option might be better than the other. Connect with me for more info if you'd like.... best of luck!

[Natalie Kolodij]

Originally posted by @Matt Ward:

Hi @Jon Blackburn, @Natalie Kolodij is spot on. If you sell that stock and the result is a $100k capital gain, you would pay capital gain tax rates on that when you file your tax return. However, if you take that gain and invest it into a property in one of the identified 'Qualified Opportunity Zones', and you hold that property for at least 10 years, the cap gain goes away. This could be an apartment, duplex, SFH... as long as it's in a zone. I believe you have 180 days from the day you sell your stock to redeploy those funds into a property. You can also seek out a 'Qualified Opportunity Fund' which is basically a syndication with the underlying asset being in one of these zones. This is of course a much more passive investment. Depending on what you're looking to do, one option might be better than the other. Connect with me for more info if you'd like.... best of luck!

 Hi Matt you're a little off on the opp zone tax treatment. 

At the 7 year mark the original gain is reduced by 15%. You get a step up in basis of 15%

At the 10 year mark and new appreciation that has been generated within/from your new op zone property that you renovated is wiped away tax free. 

Basically of your original gain 85% you'll end up paying tax on. 

I believe its December 31 2026 it becomes a taxable event regardless of if you've sold the property or not. 

[Matt Ward]

Originally posted by @Natalie Kolodij:

Originally posted by @Matt Ward:

Hi @Jon Blackburn, @Natalie Kolodij is spot on. If you sell that stock and the result is a $100k capital gain, you would pay capital gain tax rates on that when you file your tax return. However, if you take that gain and invest it into a property in one of the identified 'Qualified Opportunity Zones', and you hold that property for at least 10 years, the cap gain goes away. This could be an apartment, duplex, SFH... as long as it's in a zone. I believe you have 180 days from the day you sell your stock to redeploy those funds into a property. You can also seek out a 'Qualified Opportunity Fund' which is basically a syndication with the underlying asset being in one of these zones. This is of course a much more passive investment. Depending on what you're looking to do, one option might be better than the other. Connect with me for more info if you'd like.... best of luck!

 Hi Matt you're a little off on the opp zone tax treatment. 

At the 7 year mark the original gain is reduced by 15%. You get a step up in basis of 15%

At the 10 year mark and new appreciation that has been generated within/from your new op zone property that you renovated is wiped away tax free. 

Basically of your original gain 85% you'll end up paying tax on. 

I believe its December 31 2026 it becomes a taxable event regardless of if you've sold the property or not. 

 Yes you're correct... should have worded it differently but thank you for the correction!

[Natalie Kolodij]

Originally posted by @Matt Ward:

Originally posted by @Natalie Kolodij:

Originally posted by @Matt Ward:

Hi @Jon Blackburn, @Natalie Kolodij is spot on. If you sell that stock and the result is a $100k capital gain, you would pay capital gain tax rates on that when you file your tax return. However, if you take that gain and invest it into a property in one of the identified 'Qualified Opportunity Zones', and you hold that property for at least 10 years, the cap gain goes away. This could be an apartment, duplex, SFH... as long as it's in a zone. I believe you have 180 days from the day you sell your stock to redeploy those funds into a property. You can also seek out a 'Qualified Opportunity Fund' which is basically a syndication with the underlying asset being in one of these zones. This is of course a much more passive investment. Depending on what you're looking to do, one option might be better than the other. Connect with me for more info if you'd like.... best of luck!

 Hi Matt you're a little off on the opp zone tax treatment. 

At the 7 year mark the original gain is reduced by 15%. You get a step up in basis of 15%

At the 10 year mark and new appreciation that has been generated within/from your new op zone property that you renovated is wiped away tax free. 

Basically of your original gain 85% you'll end up paying tax on. 

I believe its December 31 2026 it becomes a taxable event regardless of if you've sold the property or not. 

 Yes you're correct... should have worded it differently but thank you for the correction!

 I literally JUST took a few CPEs on it so it was burned into my mind. Haha

[Michael Plaks]

Originally posted by @Natalie Kolodij:

@Jon Blackburn 

Don't have to invest into a fund- can just invest in a regular house as well. Like with a 1031. 

You both are right. :)  Do have to invest in a "qualified opportunity fund" - however the fund could be an entity that invests in just one property. 

[Ben Leybovich]

You might be thinking of the opportunity zone provision in the tax law. Could, if it works the way we think it's going to work, be a hell of a powerful thing...

[David Sillaman]

For review about Qualified Opportunity Funds. SikariLuxe Opportunity Fund. 

[Jon Blackburn]

Thanks all!