All Forum Posts by: Matthew Ryan

@Steve Graves - Something to keep in mind should you fail to meet the 1031 timeframes is you can also invest your capital gain into a qualified opportunity zone fund and receive similar tax benefits. You'll have 180 days from the date of the closing to invest in a fund or one-off investment. Depending on whether you're looking to invest passively or to work alone will guide the additional steps needed to qualify for the very substantial tax break. A key factor in all of this is if you keep your capital gain in your investment for ten years, you pay zero capital gain at the sale. No 1031 needed. If you would like more info, DM with your scenario and I can give you better guidance. 

@Kathy Carpenter Kathy - @Ken Jernigan and @Tanner Crawley all make good points and are 100% valid. Only thing I would add is if you're taking other people money you'll need to find a securities attorney who is familiar and has completed an OZ "Fund" formation. Keep in mind that the "Fund" is technically a misnomer. A qualified attorney can explain the reasoning behind this.

@Jonathan Taylor - I can help but would need to know what your questions are. It is similar to a 1031 exchange but has its own set of rule and regulations. We're currently launching OZ based investments so I can help as an investor as well as someone looking to raise capital/make investments in OZ projects. 

 The only thing eligible for tax deferral under OZ's is the gain itself, Yes. 

@Account Closed - I would also like to add that there are currently a lot of rules and regulations already spelled out for OZ's. There are, however, some significant unanswered questions particularly for those who will be doing all cash/equity deals and those operating mixed investment funds. For those doing "one-off" syndications through OZ's, the rules are fairly basic and most OZ type investments that have already been done have been completed this way. If you had to assign a % out of a 100, I'd say we're 80-85% of the way there IMO. That being said, most rulings thus far have been rather favorable to the investor and showing the Treasury and administrations commitment to seeing this program work. 

@Lacey Burdett  Therefore, i couldn't go buy a house in a designated Opportunity Zone with cash sitting in my savings account. You could but wouldn't be able to take advantage of the tax deferral because it is not part of a capital gain. Yes, you are correct you would need profit aka capital gains to invest. 

 Does this mean if i buy a property whose building value has been valued at $10,000 (easy math) by the county property appraiser then i would need to add enough improvements so that when it is re-appraised the building value is at a minimum $20,000 in order to qualify for the tax benefit? 

How is the 10k assigned? I.E. what value is assigned to the land and what is assigned to the property itself? If you assign the building as $8k and the land as $2k, you would need to invest $8k into the building (increase basis by 100%) in order to qualify for the tax deduction. It has nothing to do with the appraised value. Just this is what the building is worth and you need to put the same amount back into the building. So substantial rehabs and development opportunities are the best fit for Opportunity Zone Investments. This was the idea behind it; job growth and driving property tax revenue to distressed census tracts.

@Steve Hartkopf - Read up on Opportunity Zones. They are similar to 1031 exchange but with more flexibility and better tax deferral strategy IMO. If you hate paying taxes, one simply cannot ignore the MASSIVE tax benefit OZ's present as well as how they kind of force you to look at a project in a 10-year timeframe.  This, in my opinion, is very positive for someone in your position because it will make you consider tax liabilities, cash flow and ways to create liquidity. I think we too often get bombarded with return profiles and financial metrics which keep us from focusing on those three key aspects. We'll be hosting webinars and I'm happy to run you through the complexities of OZ's in a quick call.

@Shannon Phillips - I would second what @Jay Hinrichs said and add a few things:

(1) I would also recommend Fairway America's investment platform and investment opportunities. Matt Burke is a thought leader in the mid-market space ($2-$25 million) and has a host of incredibly talented syndicators and fund managers who they currently handle fund management and capital raising for. 

(2) 1031 exchanges are great but I would also consider Opportunity Zones as a potential capital gain tool. As others have indicated, selling out of the low cash flow but high equity assets could set you up nicely into some good development opportunities with ST depreciation (off-setting taxes) and good LT cash on cash. We have an East Bay product we're launching now that is high cash flowing within OZ's. That being said, there are over 250 Opportunity Zone Funds. 

Last thing I'll say is you've clearly gotten to where you are by following instincts and identifying growing markets; stick with that and don't abandon that "base". There are plenty of good markets with 10-year growth opportunities that will probably outperform SF over the LT.

Extreme Ownership - Jocko Willink

https://www.amazon.com/Extreme-Ownership-U-S-Navy-SEALs/dp/1250183863/ref=sr_1_2?keywords=extreme+ownership&qid=1551716611&s=gateway&sr=8-2

@Brian Mahoney - Opportunity Zones are also a newer but equally proficient way for deferring capital gains. Here are a few baseline rules:

1. Only the capital gain may be invested in an Opportunity Zone investment tax-free.

2. If you keep the investment for ten years, the capital gain at sale beyond the ten years is free of any tax. Five years and your basis (tax basis) are decreased by 10%, seven years = 15%. 

3. Unlike 1031, you have 180 days from the day of the gain is recognized (you sell), to roll into an Opportunity zone project or "fund".

4. An OZ project must be "substantially improved" which limits it to development projects and very heavy value add. So if you're looking to invest actively and not passively, you would need to look for projects that meet this criterion. You have 30 months to complete the project renovation.

You can also get more info on the IRS website: https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions