It’s easy to figure out where tax incentives lie in wait. Just study the tax code.
The latest version of the tax code introduces a new tax shelter … opportunity zones. But … what are opportunity zones?
In this episode of The Real Estate Guys™ show, we dive into what we know about opportunity zones … including three MAJOR benefits.
You’ll hear from:
- Your opportunistic host, Robert Helms
- His inopportune co-host, Russell Gray
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Opportunity zones: The basics
There’s a way to pay no tax on certain investments AND heal struggling communities. We’re talking about opportunity zones.
These new geographic tax shelters are encoded in the version of the tax code passed in 2017 … but they’re not totally finalized yet.
That doesn’t mean they’re not important … savvy investors will be absorbing all the info they can BEFORE opportunity zones go into action.
The idea of opportunity zones is to offer a tax-favored investment vehicle for people who already have capital gains in other investments.
Opportunity zones will be located in low-income communities ripe for revitalization … and will be located in every state in the U.S.
The fundamental purpose of opportunity zones is to encourage long-term investments in struggling communities.
Congress has established an incentive framework that is flexible and unique. This is essentially a new class of investment.
These opportunity zones complement existing community development plans. In essence, the project is treating the U.S. like a giant rehab project.
You’ll basically be moving yourself into a pre-identified path of progress. There hasn’t been a ton of incentive for investors to come into these run-down, lower income areas. But NOW there is.
The benefits of opportunity zones
Like we said earlier, the idea of opportunity zones is set, but the legislation is not in action yet. The appropriate documentation and legislation will be in place by the end of 2018.
So NOW is your time to prepare for the future.
There are definite differences between this opportunity and other investments. Generally, you’re required to pay tax when you liquidate capital gains.
But investing in opportunity zones provides three unique tax benefits. Before we get into those, we do want to clarify … this investment is only available for investors who already have capital gains from previous investors.
But not to worry … if you’re a newer investor who doesn’t have any capital gains yet, there are ways to get in on the action. We’ll get into those in the next section.
Now, the three tax benefits …
- You can defer your original capital gains tax for up to 10 years. As you probably know, it’s always better to defer taxes than to pay now.
- You also get a 10 to 15 percent discount on your original capital gains tax.
- AND …when appreciated capital gains are put into an opportunity zone investment, the gains you make from that investment are completely tax free.
There is a timeline. You have to sell the appreciated assets and invest the capital gains into one or more opportunity zone investments within 180 days.
But we want to emphasize … your capital gains from properties in opportunity zone areas will be completely TAX FREE.
No capital gains? How to invest in opportunity zones
The government has a goal here … they want to bring a ton of investment capital to certain areas and swing them around.
In that vein, there is a certain requirement you have to follow to invest in opportunity zones … there is NO tax incentive if you own property in an opportunity zone under your own name.
You have to invest in opportunity zones through opportunity funds.
If you don’t have appreciated assets, you may be wondering how you can start an opportunity fund and get in on this great opportunity.
There are a few options …
- Invest in an area near an opportunity zone. You’ll be boosted up by the wave of capital increasing asset values all around you.
- Invest as a syndicator. Set up an opportunity fund … and get other investors to contribute their capital gains.
This last point is something to seriously consider … especially when you start thinking about the stock market.
The stock market is hot, but it’s showing signs of faltering. People want to take their capital gains out … but they don’t want to pay taxes.
A fantastic solution? Opportunity funds.
All about opportunity funds
What does it take to put together an opportunity fund?
Opportunity funds do not have investment limitations.
They must be organized as a corporation or a partnership.
They do not require official IRS approval … the fund manager can self-certify the fund simply by submitting a form to the IRS.
The process is designed for speed. It cuts out bureaucracy … and brings locally driven change to areas that need it.
But it also requires investors to make REAL change … for example, one requirement we expect to see is that investors put as much into rehab and construction as they spent to acquire the property.
Opportunity zones mean sending money to the bottom of the market … and making the subsequent changes LAST for the long term.
For a map of tagged and categorized opportunity zones, plus more information, simply send us an email at opportunityzones [at] realestateguysradio [dot] com.
And don’t think this is the last you’ll hear about opportunity zones … we expect this to be a BIG wave in the real estate investing sea, and we’ll be providing more information to our listeners as this new opportunity develops.
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