INTRODUCTION TO QOZs
Qualified Opportunity Zone Funds
CRE Development Capital is a real estate development and investment firm focused on mixed-use and multi-family, industrial, and storage development opportunities in the United States, including opportunity zones.
WHAT IS AN OPPORTUNITY ZONE?
An Opportunity Zone is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. They are designed to spur economic development, start new businesses, develop abandoned properties, and provide low-income housing.
Opportunity Zones (OZ) – were added to the tax code through the Tax Cuts and Jobs Act (TCJA) on 12/22/2017.
TAX INCENTIVES
Temporary tax deferral
Temporary deferral of tax on capital gains (CG) reinvested in a qualified opportunity fund (QO Fund).
Potential step up
Possible step up in basis of the investment.
Possible permanent tax exclusion
Possible permanent exclusion of tax on CG from growth of QO Fund investment.
Example investment
- Taxpayer sells CG property (stock or partnership interest) with a basis of $500,000 for $1,000,000, resulting in a CG of $500,000.
- Within 180 days, taxpayer invests the $500,000 CG into a QO Fund, elects to defer tax on the gain until the earlier of the sale of the investment in QO Fund or December 31, 2026.
- Taxpayer holds investment in QO Fund at least 5 years, and the basis is stepped up 10% – $50,000 Now the basis is $550,000.
- On 12/31/2026 Taxpayer pays tax on $450,000 CG, excluding $50,000 from being taxed.
- After ten years from initial investment, taxpayer sells the investment in QO Fund for $1,700,000.
- Taxpayer makes election to have basis = Fair Market Value in investment.
- The entire appreciation on the investment will be excluded from tax (no tax paid on $1,200,000 gain).
DETAILS AND INCENTIVES
Upon a Capital Gains event, there is a 180 day limitation to invest the CGs into a Qualified Opportunity Fund.
Temporary tax deferral
Deferral of tax is limited to the earlier of 1) The sale of investment in QO Fund, or, 2) December 31, 2026.
Potential step up
Basis step up is limited. Need to hold the QO Fund investment for five (5) years for a 10% basis step up.
Possible permanent tax exclusion
Elimination of tax on investment appreciation: Need to hold QO Fund investment for 10 years.
Direct Investment Structure
This is an example of what a typical direct investment structure might look like when investing in a qualified opportunity fund.
SPE Investment Structure
This is an example of what a typical SPE investment structure might look like when investing in a qualified opportunity fund.
OUR OPPORTUNITY ZONE FUNDS
Phoenix Opportunity Zone Fund
A luxury hotel / residential property located in the beautiful Warehouse District in Phoenix, Arizona. Features 210 hotel keys and 200 residential units. Learn more->
Cleveland Opportunity Zone Fund
The Fund is a multi-asset fund focused on Opportunity Zone real estate development in qualified opportunity zones predominantly in Ohio and the Midwest. Learn more->