Qualified Opportunity Zones
Spurring Economic Develpment and Job Creation
“We want all Americans to experience the dynamic opportunities being generated by President Trump’s economic policies. We anticipate that $100 billion in private capital will be dedicated towards creating jobs and economic development in Opportunity Zones. This incentive will foster economic revitalization and promote sustainable economic growth, which was a major goal of the Tax Cuts and Jobs Act”. US Dept. of Treasury, Steven T. Mnuchin Secretary of the Treasury, October 19, 2018.Sweeping Legislation
The “Investing in Opportunity Act” included in the Tax
Cuts and Jobs Act, passed in December 2017, introduced
an innovative way to stimulate private investment in low income communities. The program rewards investors with
significant tax savings for their commitment of long-term
investment capital.
Each state governor was provided the opportunity to
select up to 25 percent of the Qualified Opportunity Zones
(“QOZ”) in their jurisdictions to develop economically
depressed areas. To qualify, the area needed to meet
certain low-income requirements including a higher than
20 percent poverty rate or a prevailing median family
income less than 80 percent of the metropolitan median
family income, based upon the most recent census tract
data (2010).
In total, over 8,700 QOZs, home to more than 35 million
Americans, were designated in 50 states, Washington
D.C., and U.S. territories. In the aggregate, the designated
QOZs, as certified by the Treasury Department, manifest
an average poverty rate of 31 percent and a median
family income of 59 percent relative to its applicable area.
Approximately 75 percent of QOZs are located within
metropolitan areas.
Tax Advantages
Potential tax benefits of QOF investment.
QOF investors access a powerful suite of tax incentives including capital gains tax deferral, a step up in basis and tax free growth. If an investor sells any asset that generates a capital gain and has invested an equal or lesser amount in a QOF within 180 days, they could enjoy the following benefits:Tax free growth
Once invested in a Qualified Opportunity Fund, any capital gains tax on realized appreciation in the QOF will be tax free provided that the investor's holding period reaches ten years. The Qualified Opportunity Zone legislation was designed to incentive private sector investment in distressed communities.
Tax reduction
The taxable gain is reduced by ten percent, with an additional five percent reduction if the investment is held for a seven year period. In order to qualify for the additional five percent gain reduction, the QOF investment must have been made in the 2019 tax year.
Tax deferral
The initial capital gain tax from the sale of any asset, where the equal or lesser amount is invested in a QOF within 180 days, can be deferred. Investors are not required to invest the basis from the original investment in order to receive the deferral benefit.
QOZ Investment Timeline
Understanding the three tax benefits.
QOZ Investment Comparison
Scenario planning Qualified Opportunity Funds.
Consider the risks
Qualified Opportunity Funds also carry risks.
QOF investments involve substantial risk. It's important to understand the specific risks associated with a Qualified Opportunity Fund investment before you make investment decisions. QOF investments involve complicated tax concepts, reporting and tracking requirements which should be evaluated in conjunction with qualified tax, legal and financial representation. Stax Capital does not provide tax guidance or advice.Deferred Capital Gains.
Remember that Capital Gains tax will be due and payable in 2027. Investors must plan for this event .
Tax will be due.Speculative investments.
Qualified Opportunity Funds are speculative in nature and heavily reliant on the assumptions used by investment sponsors which may prove to be inaccurate.
Risk is inherent.Illiquid investment.
No public market currently exists and one is unlikely to develop. Selling an interest in a QOF may proved to be difficult or impossible.
Difficult to sell.Real estate risks.
Investments in real estate are subject to various economic risks including among other things recession, inflation, supply and changing market demographics.
Understand real estate risks.Potential returns
The amount and timing of QOF investment distributions are not guaranteed. There is no guarantee that investor will receive distributions or a return of capital.
No guarantees.Economic risks
Disruptions in the financial markets and challenging economic conditions could adversely affect QOF investments.
Economic impact.Tax Risks
Tax rules and guidelines for QOZ investing have not been finalized and subsequent changes to QOZ rules and guidelines may have material adverse consequences to QOF Funds and their investors.
Regulatory Risk
The regulatory framework governing QOZ investing is fluid and changes are ongoing. Subsequent changes to QOZ and QOF regulations may have material adverse consequences to QOF Funds and their investors.
QOZ Uncertainty
Qualified Opportunity Zone tax laws are new and untested and subject to substantial modifications which creates a high level of uncertainty. Changes to tax laws may have material adverse consequences to QOF Funds and their investors.
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Completed Investments
| Carter Mulit-family I
Primarily Southeast |
|
| Total Capital Placement $200,000,000 |
|
| Loan to value 65-75% LTV Target |
|
| 1031 Eligible no |
|
| Minimum Investment $50,000 |
|
|
Type Multi-Family |
Structure LLC |
| Multi-Family DST
Bedford, NH |
|
| Total Capital Placement $31,453,687 |
|
| Loan to value 53.12% |
|
| 1031 Eligible Yes |
|
| Minimum Investment 25k Cash - 100k Exchange |
|
|
Type Multi-Family |
Structure DST |
| SENIOR LIVING DST
Phoenix, AZ |
|
| Total Capital Placement $53,544,255 |
|
| Loan to value All Cash Offering |
|
| 1031 Eligible Yes |
|
| Minimum Investment 25k Cash - 100k Exchange |
|
|
Type Seniors Housing |
Structure DST |
| MULTI-FAMILY DST
Lexington, KY |
|
| Total Capital Placement $34,342,000 |
|
| Loan to value 47.82% |
|
| 1031 Eligible Yes |
|
| Minimum Investment 25k Cash - 100k Exchange |
|
|
Type Multi-Family |
Structure DST |
| MULTI-FAMILY DST
Houston, TX |
|
| Total Capital Placement $30,400,000 |
|
| Loan to value 46.89% |
|
| 1031 Eligible Yes |
|
| Minimum Investment 25k Cash - 100k Exchange |
|
|
Type Multi-Family |
Structure DST |
| MULTI-FAMILY DST
Louisville, KY |
|
| Total Capital Placement $32,850,000 |
|
| Loan to value 53.89% |
|
| 1031 Eligible Yes |
|
| Minimum Investment 25k Cash - 100k Exchange |
|
|
Type Multi-Family |
Structure DST |
| MULTI-FAMILY DST
Nashville, TN |
|
| Total Capital Placement $28,250,000 |
|
| Loan to value 56.59% |
|
| 1031 Eligible Yes |
|
| Minimum Investment 25k Cash - 100k Exchange |
|
|
Type Multi-Family |
Structure DST |
| MULTI-FAMILY DST
Destin, FL |
|
| Total Capital Placement $33,450,000 |
|
| Loan to value 55.22% |
|
| 1031 Eligible Yes |
|
| Minimum Investment 25k Cash - 100k Exchange |
|
|
Type Multi-Family |
Structure DST |
| MULTI-FAMILY DST
TX, GA & NC |
|
| Total Capital Placement $72,403,877 |
|
| Loan to value 54.70% |
|
| 1031 Eligible Yes |
|
| Minimum Investment 25k Cash - 100k Exchange |
|
|
Type Multi-Family |
Structure DST |
| Multi-family DST
Augusta, GA |
|
| Total Capital Placement $29,525,000 |
|
| Loan to value 56.08% |
|
| 1031 Eligible Yes |
|
| Minimum Investment 25k Cash - 100k Exchange |
|
|
Type Multi-Family |
Structure DST |
| Multi-family DST
Houston, TX |
|
| Total Capital Placement $35,825,000 |
|
| Loan to value 47.53% |
|
| 1031 Eligible Yes |
|
| Minimum Investment 25k Cash - 100k Exchange |
|
|
Type Multi-Family |
Structure DST |
| Multi-family DST
Houston, TX |
|
| Total Capital Placement $35,825,000 |
|
| Loan to value 47.53% |
|
| 1031 Eligible Yes |
|
| Minimum Investment 25k Cash - 100k Exchange |
|
|
Type Multi-Family |
Structure DST |