I’ve been meaning to write about this for a while. I want to talk about the second round of guidance that we got from the IRS and the US Treasury about opportunity zones.
I’m here to simplify what has been released so that, if you have a continued interest in investing in these zones for tax purposes, this won’t take all day to read!
Investing in a qualified opportunity zone or OZ, Ozone, etc is an advantage to an investor because it allows you to possibly defer, reduce, or completely eliminate, having to pay capital gains taxes on your profits from the asset.
This legislation change came from the Tax cuts and Jobs Act from our President Trump.
After 5 years of holding the property, you have the ability to have a 10% tax exclusion. After 7 years, it increases to 15%, and after 10 years, taxes on gains are completely eliminated.
You can find the areas that are deemed “opportunity zones” by googling opportunity zone heat maps.
Now this post is about the second round of guidance on these rules. After the first round of very vague rules from the government, they came back with some clarifications.
1. Partnerships, corps, LLC’s must have 50% of their gross income in qualified OZ business (safe harbors for this to make sure you qualify include hours of contractors, wages and payments, and property operation who are needed to produce 50% of the income).
2. You have 31 months to improve the property once vacant after original use ends or build new improved structures. (you get 31 months to improve the property if vacated. if vacated from original use is what i mean- for example it was a hospital, no longer is one and has to not hav a hospital for 5 years or more to be renovated as an opportunity zone.
3. Additional clarity on “substantially all” business to be in the OZ business-To qualify as Oz business at least 70% of the TANGIBLE property must be IN the qualified zone during holding period.
4. “Holding period” means 90% of its physical assets. (Can be in transit).
5. “Original use”-abandoned buildings 5 plus years after “original use”. Needs to be vacant 5 years minimum.
6. Triple net leases will and do not qualify
7. 31 months used for repositioning or making changes to the property-can get a 31 month extension from the government if their speed of response/getting filings completed causes you to go over the 31 month time period. This DOES NOT apply to natural disasters, or not caused by the government.
I have a powerpoint from the atty. who presented last night at my opportunity zone meetup @madisontitle if you would like it please email me
Our guest speaker Kavitha Baratakke also spoke on what questions you should consider asking an opportunity zone fund sponsor as a passive investor- if you would like this info. as well just email us at email@example.com
any questions email me directly firstname.lastname@example.org
we have meetups once per month -if you want to join go to meetup.com or use the app to search for “dallas apartment investing meetup”
see you there!!