All Forum Posts by: Austin Hendrickson

@Adrian Chu I believe it has to be a sale to an unrelated party. You could potentially still own 49% of the property and sell to an investment company that has 51% control but I would need to verify this

Turn key properties in OZ's are irrelevant and do not have any tax benefits. RE investments in an OZ must be a new build or significant renovation (100% of purchase price) to qualify.

@Patrick Ma keep in mind that investments in OZ's must rise to the level of a "trade or business" which is a grey area in the tax code. The proposed regulations just came out yesterday so we will be diving into them over the following week.

Would a single single or multi-family home investment or two be considered a trade or business? Debatable. 

Would a large apartment building with professional management qualify as a business? Most likely.

On the surface though if the BRRRR strategy does qualify it could be a great vehicle to building wealth through OZ's.

Especially if you plan on selling anything before you die (which in that case would make it better than a 1031). Another key point is that investors must have capital gains to invest in OZ's.

I have seen many questions on the proposed opportunity zone regulations and the self-certification form.

Well as of today the IRS has issued guidance!

The IRS has just issued updated guidance on OZ's including the draft self-certification form (Form 8996).

From a quick high level glance at the newly issued 74 page draft regulations it does appear that only capital gains will qualify (which confirms the position our team held) 

Our real estate team will be diving into this over the weekend and next week in more detail.

Breaking news!

The IRS has just issued updated guidance on OZ's including the draft self-certification form (Form 8996).

@Dan Oxman @Tony Kim From a quick high level glance at the newly issued 74 page draft draft regulations it does appear that only capital gains will qualify.

Our real estate team will be diving into this over the weekend and next week in more detail.

Here is a more comprehensive dive into OZ's for anyone that is looking

https://www.biggerpockets.com/forums/51/topics/586...

@Dan Oxman see my post above

@Dan Oxman as far as where in the code it says only capital gains are allowed:

The benefits OZ's of sub section Z (1400Z-2) are spelled out under the 1400Z-2 heading "Special Rules for Capital Gains Invested IN Opportunity Zones" - this means that the OZ benefits ONLY apply to OZ investments funded with capital gains.

Under 1400Z-2(e)(1) it spells out that any investment that consists of only a portion of gains will be broken out into two separate investments, with only the capital gain portion giving rise to any tax benefits. The non-gain portion will not have any tax benefits.

The tax code is very complex and hard to read which is why having a good tax CPA on your side can save you on the front end. 

@Dan Oxman you are not the only person to initially think cash could be invested and give rise to tax benefits, it is a common misconception.

I have confirmed this with OZ leaders in our firm as well as a few OZ syndicators and the OZ lead at a large Big 4 firm. All are in agreement that cash investments do not give rise to tax benefits at this point in time.

Bottom line is that capital gains must be used. There is some talk on wanting the IRS to clarify if it must be capital gains or if ordinary gains would qualify as well due to certain language that only refers to "gains"

From what I have heard the reasoning behind requiring capital gains to fund OZ investments is to trigger sales and spur economic activity (you must have a sale to trigger capital gains) as well as to get some idle capital gains taxed even if they are deferred until 2026.

@Dan Oxman Yes the investment must be derived from capital gains as @Tony Kim mentioned. A pure cash investment would not qualify for the OZ tax-benefits.