All Forum Posts by: Lane Beene

@Vladimir K.  

the subject of basis is treated differently for OZ.  Upon OZ purchase the your basis goes to zero.  This is the legislative process to calculate the 5 and 7 year capital gain step ups on the original investment.  It does not adjust the basis for substantial improvement requirements.  Further, the treasury guidance hasn't specified the schedule for improvements, the first 30 months or any 30 months.  The treasury guidance says any 30 months, but clarification has been requested.  So I don't think your  strategy of delay property improvements until the basis has been decreased to the point where financial returns make sense is going to float.  If the second level of treasury guidance doesn't clarity this point - this is past the intent of OZ, and the industry experts (tax lawyers)  feel this will be disallowed

@Vladimir K. second topic adjusted basis.  Upon purchase into an OZ an investor acquires $0 basis.  Therefore any front-loaded depreciation or expense is deferred until offset with passive gains.  This doesn't reduce the adjusted basis as assumed.  Complex topic that would require pages of email but your assumption is not correct.  

@Vladimir K.

I just attended the IPED conference on OZs and this exact topic was discussed.  The treasury guidance is not clear on the timeline for substantial improvements (first 30 months or any 30 months) and clarification has been requested.  Prior to additional guidance the recommendation was assume first 30 months to avoid being disqualified for the OZ load test and timing requirements.  

The 2nd tranche of Treasury guidance is expected out soon and hopefully will clarify this and other issues with this new program.  

We created an educational video to explain OZ and benefits.  Most of the OZs (75%) don't provide financial requirements for economic return, however when OZs are paired with the right market conditions the investor is $44 richer for each $100 invested in OZ vs standard investments with no tax benefit (SP500).  If you understand the power of tax advantaged investments then study OZs and prospect in your area and leverage your investment strategy with this powerful tool!  

https://www.youtube.com/watch?v=2lAkhbHW0us

https://www.youtube.com/watch?v=5XHqq7-0Tp8&t=307s

"helping you become a better Millionaire!" 

@ the entry into a 1031 exchange preserves capital but when you exit a 1031 capital gains are required to be paid based upon the transferred basis from the surrendered property.  You can re-invest these capital gains into an OZ and benefit from the OZ incentives.  The 1031 capital gains are deferred and decreased based upon the length of holding period (5 years or 7 years) explained in previous messages.

only the re-invested capital gains from the sale of an asset (real estate, stocks, business) are eligible for the OZ tax benefits.  Funds from a retirement plan 401K have a different tax qualification and might not be eligible for OZ benefits. 

@Nicholas Aiola good explanation.  Is my understanding of this correct: 

1. Only funds placed into an OZ within 180 days of the sale that produced a capital gain are eligible for the OZ tax benefits.  Other funds are not eligible for OZ benefits. 

2. Any depreciation loss (cost segregation study) will not change the capital gain tax required 7 years or NLT (Dec 31, 2026).  The adjustment in basis (10% @ 5 yrs or 15% @ 7 yrs) applies only to the amount of initial capital gains invested. 

3. If the OZ is held 10 years the basis is adjusted to fair market value upon sale.  Depreciated loss is irrelevant.  

Thank you - the guidance on the topic is thin

for an opportunity zone investment.  is the 15% set up in basis in year 7 of capital gains offset by any capital losses during the project? 

Example:  $100,000 re-invested capital gains into a OZ

property looses $50,000 in depreciation over 5 years

is the basis reduced by $50K in year 7?

the OZ located with strong fundaments will sell for a premium.  the best strategy to pair with OZ is new development.  I would research zoning laws consider re-zoning into commercial and selling as new development.  Difficult process but OZ in commercial area with strong fundamentals is highest and best use.  there isn't a big pop for residential property transactions in OZs

agree with previous comments. the OZ incentives provide great tax advantages, however you have to substantially improve the property if buying an existing building.  that means 2x your investment to qualify.