Mitigating Tax Burden Through Opportunity Zone Investments

Tax season is upon us, and a recently enacted federal law is giving individuals with unrealized capital gains an opportunity to reinvest that money into real estate with tax benefits.

What is a Opportunity Zone?

An Opportunity Zone is a new community development program established by Congress in the Tax Cuts and Jobs Act of 2017 created to encourage long-term investments in low-income urban and rural communities nationwide.

The Opportunity Zones program provides a tax incentive for investors to re-invest their unrealized capital gains into properties that fall in the Opportunity Zones.

These zones have been established and can be viewed by filtering out the Qualified Opportunity Zone Tract layer through this link.

The Economic Innovation Group is a great resource and if you want to read more click here.

How to Invest Personally in Opportunity Zones

So how do you utilize this investment strategy? Per Natalie Kolodij, a tax consultant on Bigger Pockets, here are the steps you will take.

“First, you will make an election on your 2018 taxes that you're deferring the gain on the sale of stocks. You pay no tax now. You DO pay tax Dec 31, 2026 OR when the property is sold, whichever is earlier.

Per laws rhetoric, significant improvements will need to be made to the property. Significant improvement was just re-defined by the latest IRS release to be the amount of the BUILDING basis (originally it was worded more like purchase price of the property) but now basically if your property cost $50k and building value was $20k ....you must put $20k into the property.

You have 30 months to do the renovations. It's worded to where it can be read as 30 months at any point during hold, but that doesn't make sense to me. I think intention was buy, renovate, rent.

If you hold for 5 years - 10% of your initial deferred gain from those stocks is removed (stepped up basis)

If you hold for 7 years- 15% of your initial deferred gain from those stocks is removed.

If you hold for 10 years- any NEW appreciation/gain related to the property in the QOZ (totally unrelated to the stocks you're selling) can be sold TAX FREE. (Step up in basis of the property to current FMV)”

Interested in Hearing More?

New Western currently has houses in these zones and if this sounds like something you'd be interested in pursuing, feel free to reach out via any contact information stated below.