OPPORTUNITY ZONE INVESTMENTS
U.S. REIT intends to operate as a qualified opportunity fund
OUR OBJECTIVE – OPPORTUNITY ZONE INVESTMENTS
OPPORTUNITY ZONE PROGRAMS
The Tax Cuts and Jobs Act of 2017 created a generous tax inventive program to promote economic and community development via the Opportunity Zone program.
Opportunity Zones are 8,766 low income census tracts located in all 50 states and Puerto Rico that were selected by governors and subsequently certified by U.S. Treasury.
Taxpayers with unrealized capital gains may achieve significant tax benefits, including temporary deferral, reduction and exemption, by realizing capital gains and deploying proceeds (i.e., the gain, not the cost basis( into a Qualified Opportunity Fund.
Taxpayers must invest all or a portion of realized capital gains into a Qualified Opportunity Fund within 180 days of the asset sale to take advantage of the program’s tax inventive.
Qualified Opportunity Funds must hold at least 90% of their assets in Opportunity Zones and develop or substantially re-develop real estate within specified timeframes.
There is no guarantee that the rules, regulations, or interpretations will be adopted or implemented as described. Nothing herein constitutes tax or legal advice. As a result of the uncertainty of and compliance with qualified opportunity fund rules, there can be no guarantee that investors will be able to take advantage of any potential tax benefits.
What Is An Opportunity Zone?
Low-income census tracts: poverty rates of at least 20% or median family incomes no greater than 80% of the surrounding area.
Governors were given discretion to select 25% of eligible tracts in their respective states to be Opportunity Zones.
Great variance in the growth characteristics and valuation of Opportunity Zones – selection is key.
Number Of Opportunity Zone Census Tracts By State
In 2018, the U.S. Department of the Treasury certified 8,766 individual census tracts across all 50 states, six territories, and the District of Columbia as Opportunity Zones.
These communities were chosen by governors from the wider universe of qualifying low income census tracts. Governors selected tracts that on the whole demonstrated far more distress across nearly every available social and economic measure than eligible tracts they bypassed.
Summary Of Potential Tax Benefits
There is no guarantee that the rules, regulations, or interpretations will be adopted or implemented as described. Nothing herein constitutes tax or legal advice.
As a result of the uncertainty of and compliance with qualified opportunity fund rules, there can be no guarantee that investors will be able to take advantage of any potential tax benefits.
State Income Tax Advantages
Risks Associated With Opportunity Zone Investing
Why do Individuals Need Opportunity Zone Investments In Their Portfolio?
Investors need Opportunity Zone investments in their portfolio. Investors with capital gains investing in a Qualified Opportunity Fund is similar to getting a “free option”. This is because:
An investor with unrealized capital gains, for instance capital gains in the stock of a listed company such as Apple, could sell that stock and them immediately rebuy that same stock. The investor’s tax basis in the stock would increase to current price. The capital gains that the investor thus realizes can then be reinvested into a Qualified Opportunity Fund, and the tax on these capital gains can be deferred until the end of 2026. The investor steps up his stock position to market value, while deferring taxes on associated capital gains until taxes are due on April 15, 2027.
Not only can capital gains taxes be deferred, but they can also be reduced. An investor can realize up to a 10% reduction in the capital gains taxes due if he reinvests the capital gains into a Qualified Opportunity Fund by December 31, 2021 and holds the investment for 5 years.
In addition, the appreciation that an investor realizes on capital gains invested in a Qualified Opportunity Fund is tax-free, if the investor holds the Qualified Opportunity Fund Investment for at least 10 years.
The Right Investment Structure
The optimal structure for investing in Opportunity Zones is a publicly traded real estate investment trust (”REIT”) structure. A REIT structure can offer several advantages over traditional private equity funds, such as:
Simplified tax reporting (1099-DIV).
Pass-through income, avoiding double taxation for investors.
Low minimums for investor access.
Quarterly dividends.
Annual distributions of at least 90% of taxable income.
Up to a 20% reduction on taxable dividends via Internal Revenue Code Section 199A tax benefit.