A new economic development tool designed to spur investment in distressed areas.
By rolling over capital gains taxes into a qualified opportunity zone fund (QOF), investors can defer, reduce, and even eliminate any capital gains.
INITIAL TAX DEFERRAL
Defer capital gains taxes from initial sale of stocks, bonds, real estate, businesses, and other assets by investing in a QOF.
Reduce capital gains taxes by 10% or 15% if the investment is held for 5 years or 7 years, respectively.
ReExclude (forgive) capital gains taxes from QOF appreciation, if held for at least 10 years.
NEW INVESTMENT APPROACH
Yielding Major Tax Incentives
The Opportunity Zone program was created as part of the 2017 Tax Cuts and Jobs Act (TCJA) to stimulate long-term private investments in low-income urban and rural communities across the United States. By providing tax benefits to investors, this new economic development tool is designed to incentivize investment and promote economic growth in distressed areas. For the first time in history, accredited investors with any capital gain can roll their gain into a development in an opportunity zone.
INVESTING IN AMERICA
More than 8,700 Opportunity Zones have been designated across the United States and are intended to foster long-term private sector investments in low-income communities.
Is an OZ FUND
Right for Me?
A Opportunity Zone Fund may be right for you if:
You seek tax deferral and possible complete tax elimination.
You do not want property management responsibilities.
You seek institutional-quality property.
You prefer limited personal liability.
You are an accredited investor.
A OPPORTUNITY ZONE may NOT be right for you if:
You are an investor who enjoys managing the day-to-day operations of your properties.
You want control over important decisions such as when to sell, how to remodel or what rent to charge.
The Opportunity Zone program allows for the sale of any appreciated assets to reinvest in an Opportunity Zone Fund. This includes, but is not limited to, the sale of stock, art, business equipment, and the following:
Sales of business property — The proposed regs only permitted the amount of an investor’s gains from the sale of business property that were greater than the investor’s losses from such sales to be invested in QOFs, and required the 180-day investment period to begin on the last day of the investor’s tax year. The final regs allow a taxpayer to invest the entire amount of gains from such sales without regard to losses and change the beginning of the investment period from the end of the year to the date of the sale of each asset.
Partnership gain — Partners in a partnership, shareholders of an S corporation, and beneficiaries of estates and non-grantor trusts have the option to start the 180-day investment period on the due date of the entity’s tax return, not including any extensions. This change addresses taxpayer concerns about potentially missing investment opportunities due to an owner of a business entity receiving a late Schedule K-1 (or other form) from the entity.
Investment of Regulated Investment Company (RIC) and Real Estate Investment Trust (REIT) gains — The final regs clarify that the 180-day investment period generally starts at the close of the shareholder’s tax year and provides that gains can, at the shareholder’s option, also be invested based on the 180-day investment period starting when the shareholder receives capital gains dividends from a RIC or REIT.
Installment sales — The final regs clarify that gains from installment sales are able to be invested when received, even if the initial installment payment was made before 2018.
Nonresident investment — The final regs provide that nonresident alien individuals and foreign corporations may make Opportunity Zone investments with capital gains that are effectively connected to a U.S. trade or business. This includes capital gains on real estate assets taxed to nonresident alien individuals and foreign corporations under the Foreign Investment in Real Property Tax Act rules.
The 180-day window for re-investing starts when you sell the asset, and you would have to re-invest the gains before the 180 days are up. There is no official guidance on the date to use as the re-investment date from the IRS or Treasury yet. However, our best judgment is that the date you consider being invested would be the date that the qualified opportunity fund receives the money, which would usually be the date of your wire (usually the same day). When investing with a CRE platform, it’s important to note that this is the date when you wire the funds, not the date you submit the offer. You don’t need to have the capital gains ready at the moment you make your offer, but they do need to be used to submit the funds.
No, the distributions during the life of the project before it hits the 10-year mark or even after it hits the 10-year point are still taxed at ordinary rates. It’s the capital gains –the increase in the value of the asset itself — that is tax-exempt. However, depending on the investment, any passive losses that are generated from the first few years of the investment or some of your other investments may offset that income over the course of the investment.
You will have to pay state taxes on these distributions during the course of the investment in the state where the investment is located, but you will not be taxed in both that state and your home state (if those two states are different). You will receive a K-1 form for each year that you are invested in the opportunity zone fund, starting with the first year.
IRS Form 8949 is used to document which capital gains are used for the investment, and you submit this when you file your tax returns. The statement you have from your brokerage that shows the date the stock was sold would be sufficient as documentation.
REQUEST INFORMATION ON
Available OZ Fund Properties
Property pictured is not associated with any current offering.
Property pictures are not associated with any current offering.
Securities offered through McDermott Investment Services, LLC, a Registered Broker Dealer. Member FINRA, SIPC. Home office 44 East Broad Street, Suite 216, Bethlehem, PA 18018. The information contained on this page is not an offer to purchase, which can only be done through the private placement memorandum which includes a description of risks and benefits. Securities are offered through McDermott Investment Services, LLC, a registered Broker/Dealer, Member FINRA, SIPC and MSRB. Home office 44 East Broad Street, Suite 216, Bethlehem, PA 18018 McDermott Investment Services, LLC, and Crawford 1031 Advisors are separate entities.
Investment real estate, including securitized real estate, comes with substantial risks, including but not limited to: the absence of guaranteed income; lack of liquidity; the risks of owning, managing, operating and leasing properties; possible conflicts of interest with managers and affiliated persons or entities; the risks associated with leverage, tax risks, including possible changes in tax law; declining markets and challenging economic conditions; on-going fees; and known or unknown regulatory challenges. Finally, it should be understood that the ultimate risk of investing in real estate could include the total loss of principal investment.
This message is intended for residents of the United States of America in certain states only. Please check with us to ensure we are registered in your state.