Author Topic: "Opportunity Zones"  (Read 595 times)

GreenEggs

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"Opportunity Zones"
« on: October 31, 2018, 05:03:27 PM »
A buddy invited me to lunch today with a couple of financial advisors.  I needed to get out of the house and figured a free lunch was a good enough reason.


The topic they lightly discussed was about "opportunity zones".  I listened and think I understood the basics, and asked them to email me more details.


The basics are that you can invest the amount equal to whatever capital gains taxes you have into distressed geographic areas that have be marked by the government as "opportunity zones".  They also mentioned being able to invest the funds in securities and borrow against the funds, using them as leverage.  They also mentioned ways to defer the taxes and even totally avoid them, but I couldn't really grasp the details over a short casual lunch.

Anyway, I was wondering if any of you know anything about opportunity zones?  A quick google search shows articles that are only a day or two old, so I think this must be a recent thing.

I'm all for utilizing funds that would have otherwise been paid as a capital tax bill for both personal and social gains.   

terran

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Re: "Opportunity Zones"
« Reply #1 on: October 31, 2018, 05:15:45 PM »
MMM's accountant has been writing about it a bit recently. These might help: https://wealthyaccountant.com/2018/10/23/opportunity-funds-deferred-and-tax-free-gains/ and https://wealthyaccountant.com/2018/10/29/reduce-your-taxes-to-zero/

I have a hard time seeing how these are going to be good investments. Seems like there's too much opportunity for high fees, opaque investments and by definition you're investing is areas that are struggling economically. Hearing your story about being taken out for "free" lunch by a couple of financial advisors seems to me to support my belief that this will probably make the people selling these investments a lot of money, but maybe not so much the investor.

GreenEggs

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Re: "Opportunity Zones"
« Reply #2 on: November 01, 2018, 04:44:54 AM »
Thanks for the links.  I looks like great info.  I hadn't seen that site before.


My buddy recently sold his business and is scrabling to figure out how to minimize the capital gain tax hit.  I sent him the links last night as soon as you posted them.  Hopefully he'll read it and get an understanding so he can ask the right questions.


I will be selling off some property soon, so will be facing similar capital gains concerns then.  Thankfully I will have a bit more time to learn about the options. 


I'll print the articles and reread them a few times before meeting with my accountant.  Hopefully these concepts aren't news to her. 




DoNorth

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Re: "Opportunity Zones"
« Reply #3 on: November 11, 2018, 11:57:54 AM »
My take on this is that if you are a real estate investor, you can self designate with the IRS, form your own LLC and buy and hold rentals under the LLC as long as the properties fall within an opportunity zone.  Assuming you hold for at least 10 years, there would be no capital gains at the time of sale and there would be a sliding phaseout the earlier you sell.


katsiki

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Re: "Opportunity Zones"
« Reply #4 on: November 12, 2018, 08:44:50 AM »
Curious about this too.  Most of the map sites for this aren't great.  Has anyone found a good map site for this data?

Found this one: https://www.enterprisecommunity.org/opportunity360/opportunity-zone-eligibility-tool

It is pretty useful.
« Last Edit: November 12, 2018, 09:03:57 AM by katsiki »

chuckster

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Re: "Opportunity Zones"
« Reply #5 on: November 13, 2018, 04:07:14 PM »
I think I overheard something about this on the Motley Fool podcast, it lined up with how you described it: rolling a taxable investment into an Opportunity Zone lets you avoid capital gains if you hold for a certain amount of time (10 years?)

Lucky Penny Acres

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Re: "Opportunity Zones"
« Reply #6 on: November 16, 2018, 09:22:59 AM »

Here is a decent explanation I came across with some number examples:
https://jvltax.com/268/qualified-opportunity-fund/

If you have a current capital gain and invest that capital gain into a qualified opportunity fund (which can include a LLC you set up yourself), you can defer tax on that current capital gain until 2026, reduce the amount of the current capital gain subject to tax by up to 15% and exclude all gains within the qualified opportunity fund if you hold it for ten years.

The whole point of the program is to help boost the economy in the opportunity zones by encouraging more investment. The hope is that people looking for a tax break will invest in economically depressed areas by building or taking over run down real estate and launching businesses in those areas which in theory should help unemployment and revitalize depressed areas.

oldmannickels

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Re: "Opportunity Zones"
« Reply #7 on: November 16, 2018, 09:59:26 AM »
https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions

Here's the best map:
https://www.cims.cdfifund.gov/preparation/?config=config_nmtc.xml

On the right hand side selected overlays, then uncheck "2011-2015 LIC Census Tract All"

There are a lot of people who will make out well from the opportunity zones, but I really don't feel like I've seen a completely accurate analysis of how this will all work. People who are trying to sell you on idea like this will always highlight all the good and none of the bad. Some things that come to mind are depreciation recapture is excluded from deferral, basis issues between the deferred gain and financing, substantial improvement requirements, holding period requirements, maintaining the capital nature of the gain throughout the holding period requirement, and any changes to law that might occur between now and 9.5 years from now.