Opportunity Zones (by GKARL [PA]) Jan 10, 2019 7:24 PM|
Opportunity Zones (by GKARL [PA]) Jan 11, 2019 3:06 AM
Opportunity Zones (by NE [PA]) Jan 11, 2019 4:16 AM
Opportunity Zones (by GKARL [PA]) Jan 11, 2019 4:59 AM
Opportunity Zones (by NE [PA]) Jan 11, 2019 5:01 AM
Opportunity Zones (by S i d [MO]) Jan 11, 2019 5:23 AM
Opportunity Zones (by NE [PA]) Jan 11, 2019 5:36 AM
Opportunity Zones (by GKARL [PA]) Jan 11, 2019 5:47 AM
Opportunity Zones (by GKARL [PA]) Jan 11, 2019 6:02 AM
Opportunity Zones (by 6x6 [TN]) Jan 11, 2019 7:00 AM
Opportunity Zones (by AllyM [NJ]) Jan 11, 2019 7:25 AM
Opportunity Zones (by Lynda [TX]) Jan 11, 2019 12:40 PM
Opportunity Zones (by GKARL [PA]) Jan 11, 2019 3:14 PM
Opportunity Zones (by Robert J [CA]) Jan 12, 2019 9:52 AM
Opportunity Zones (by 6x6 [TN]) Jan 12, 2019 12:32 PM
Opportunity Zones (by Ray-N-Pa [PA]) Jan 15, 2019 5:20 AM
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Opportunity Zones (by GKARL [PA]) Posted on: Jan 10, 2019 7:24 PM
While talking with realtors today, I found out about this as we were discussing potential capital gains. This legislation can either defer or exempt a capital gain if one invests in one of these designated "opportunity zones". This will spur a ton of investment in these designated zones. It doesn't matter what the source of the gain is; it can come from a sale of stock or real estate. If the proceeds are invested in an opportunity zone and you met the holding requirements, the taxes on the gain are deferred, then reduced and if you hold for 10 years, the gain is exempt from taxes. This is huge and not many folks know about it. I have three buildings in the middle of opportunity zones and another right outside of a designated zone. Here's the deal as applied to myself: My rooming house and the seven unit I'm developing are both in the zone. I can sell the rooming house and take the proceeds and invest in developing my seven unit and if I hold for seven years, I defer taxes on the gain until 12/31/26 and at that time, I pay it, but get a 15% reduction in my tax obligation. If I held for 10 years, the gain is exempt. I'm still going through the details as this is all new. I think to gain the exemption, the capital gain would have to be realized in 2018. I think if it wasn't realized in 2018, the best you can hope for is either a 10% or 15% reduction in the gain, but even when you combine that with deferral and present value of money concepts, this is huge.
In the designated opportunity zones, this is going to drive a lot of investment from major players. A lot of syndication deals will be driven due to this as well. It will also pull money out of the stock markets as the one can sell and defer taxes as long as you invest in the zones within the designated time. The link below is from an outfit called Fundrise. They're an investment house. Here in PA, you can go to the DCED website to get a map of the designated opportunity zones.
Tax Advantages of Investing in Opportunity Zones
In exchange for following the rules of the Opportunity Zone program and investing in Qualified Opportunity Zones through Qualified Opportunity Funds, investors can receive substantial capital gain tax incentives immediately and over the long term.
When an investor divests an appreciated asset, such as stocks or real estate, they realize a capital gain, which is a taxable event. Under the Opportunity Zone Program, if an investor reinvests a capital gain into an Opportunity Fund, they can defer and reduce their tax liability on that gain. Beyond that, they can also potentially receive tax-free treatment for all future appreciation earned through the fund. Together, these tax incentives can boost after-tax returns for Opportunity Fund investors:
Those who invest realized capital gains into a Qualified Opportunity Fund can defer paying capital gains tax for those earnings until April 2027 for investments held through December 31, 2026. Gains must be invested in a Qualified Opportunity Fund within 180 days in order to qualify for any tax treatment available under the Opportunity Fund program.
Those who hold their Opportunity Fund investments for at least five years prior to December 31, 2026 can reduce their liability on the deferred capital gain principal invested in the Opportunity Fund by 10%. If the investment is held for a minimum of seven years prior to December 31, 2026, the tax liability can be reduced by 15% total.
Those who hold their Opportunity Fund investment for at least 10 years can expect to pay no capital gains taxes on any appreciation in their Opportunity Fund investment. Thatís because Opportunity Fund gains earned from Opportunity Zone investments can qualify for permanent exclusion from the capital gains tax if the investment if held for at least 10 years.
As you can see, there is a timetable that investors must follow in order to maximize the tax advantages available through the Opportunity Zone program.
Opportunity Zones (by GKARL [PA]) Posted on: Jan 11, 2019 3:06 AM
A correction here: As I read further, the scenario I laid out is incorrect. To get the reduction or exemption of cap gains, I would need to invest an amount equal to my adjusted basis in the other property. Still, this is going to drive syndication deals for big money. --209.122.xx.xxx
Opportunity Zones (by NE [PA]) Posted on: Jan 11, 2019 4:16 AM
Has this been verified with your accountant? --50.107.xxx.xxx
Opportunity Zones (by GKARL [PA]) Posted on: Jan 11, 2019 4:59 AM
Opportunity Zones (by NE [PA]) Posted on: Jan 11, 2019 5:01 AM
Well I guess you did then! Haha. --50.107.xxx.xxx
Opportunity Zones (by S i d [MO]) Posted on: Jan 11, 2019 5:23 AM
An agent who showed me a home a few months ago told me about these opportunity zones. Apparently, our town is still trying to work out what the zones are and then apply for approval to the Govt.
One negative (if true): the person I talked to said the LL is limited on the amount of RENT he can charge. This would of course potentially offset the gain from no taxes partially or fully. Since our City is still working it out, I haven't dug into it deeper yet. The idea is to avoid developers coming in a bull-dozing "affordable housing" and throwing up shiny new condo/apartments which would price low-income families out.
Can you confirm or deny whether rent is limited to qualify? --173.20.xxx.xxx
Opportunity Zones (by NE [PA]) Posted on: Jan 11, 2019 5:36 AM
I just checked areas close to me. None are in any towns I'd care to buy in. --50.107.xxx.xxx
Opportunity Zones (by GKARL [PA]) Posted on: Jan 11, 2019 5:47 AM
"Well I guess you did then! Haha"
Well, one expense I don't have is that of a high priced accountant! Note that I did not get involved in the accountant vs Turbo tax debate. LOL --209.122.xx.xxx
Opportunity Zones (by GKARL [PA]) Posted on: Jan 11, 2019 6:02 AM
Here in PA, and I believe this to be the case in most states, the governor with input from locals determines the OZ's. From what I gather here in PA there was a fair amount of lobbying for certain areas to get designations and there seems to be a mix of urban and rural areas designated. I think in areas where gentrification has set in, this will turbo charge it. I think in other areas, particularly sparsely populated rural areas, the results will likely be mixed. Whereas the tax benefits won't apply to most unless you invest in one of the funds being set up to gather dollars, I think that those who have properties positioned in the zones will see upward appreciation as investment dollars flow into these areas. However, you don't need to do that. You can set up your own investment fund. It has to be a LLC or a corporation and the process is pretty simple to register it with the IRS. The hurdle is deploying the gain within the alloted timeframe and in the amounts required for the tax benefit. For all practical purposes, this is tailor made for large scale ground up development rather than the stuff most of us do.
Given the recent volatility in the markets, I think folks will be looking to take some gains off of the table and shift into RE and there are some markets that will not see the slowing that we're seeing in the areas that have been seen huge run ups. --209.122.xx.xxx
Opportunity Zones (by 6x6 [TN]) Posted on: Jan 11, 2019 7:00 AM
Thank you for the post. A little complicated for me but I will go back and read again,probably 20x,when I have a little more time. --73.120.xx.xxx
Opportunity Zones (by AllyM [NJ]) Posted on: Jan 11, 2019 7:25 AM
The only business that seems to work in those zones are those that do not have customers come in. Plumbers, electricians and other professionals who need cheaper space and parking and room to make noise will do well. We taxpayers waste a lot of money over and over on the same problem. --73.248.xxx.xxx
Opportunity Zones (by Lynda [TX]) Posted on: Jan 11, 2019 12:40 PM
GKarl, just my 2 cents: in your 7-unit com/res plex, it shd be possible to revamp one com unit at a time into a residential unit, rent it out, then do another, etc. That way you are spending only 1/3rd of the reno cost at a time and getting back an immediate return in rent. Spread the renovations out instead of trying to do 3 renos at once. Keep the rooming house because it is working for you. Let the other bldg work for you--slow-ly. There is no rush--is there? Why shd you have to lose one in order to get the other the way you want it? You can have both, just shift your thinking from 'either/or' to 'have it all.' --108.87.xx.xxx
Opportunity Zones (by GKARL [PA]) Posted on: Jan 11, 2019 3:14 PM
That's where I'm at. I need two units rented to cover costs so my thought is to have at least two units done, but before I even start on the inside, I have a couple of roofs to replace and an fire egress issue to deal with on one existing unit as well as a sprinkler system to drop in. Fortunately, I only have to sprinkler the new units and we going to go for some additional variances to get a tank system versus a running a new tap from the water company (costs $ 9000 for the tap) and to address the egress issue with windows instead of a bunch of money installing a fire escape.
I really got an education from the three realtors I spoke with about our local market. There are many positives here and the local market for MFH has some legs. It's not going to end soon. I'm thinking what you said; just hang onto everything. Thanks for reaffirming that thought.
I really need to do a string on my experiences with this development as well. This is going to be an interesting ride as well. --209.122.xx.xxx
Opportunity Zones (by Robert J [CA]) Posted on: Jan 12, 2019 9:52 AM
There are investors that "do" and some that "don't" lay out a plan on how to proceed with the maximum results. Higher income and lower taxes.
I've read up, taken classes and have schooling on all aspects of investments, including real estate. Before the buy, during ownership and sales/disposal. There are many, and I mean many ways to plan ahead with a greater outcome -- income, maintenance reduction costs and profit.
Opportunity Zones (by 6x6 [TN]) Posted on: Jan 12, 2019 12:32 PM
Robert J,how many classes did you end up taking and how many years did it take? where these in college? --73.120.xx.xxx
Opportunity Zones (by Ray-N-Pa [PA]) Posted on: Jan 15, 2019 5:20 AM
I am not really interested in investing in the hood over in Erie. Perhaps a D or E class location is a good fit for someone with an iron stomach, but I am interested in predictable cash flow.
I applaud you for doing research, but why give yourself an ulcer, hoping for a turn around in these specific areas?
The way I see it, the current President is a LL himself. If there was a time to sell assets, I would be eyeing his tax reform bill. Couple that with it still being a sellers market here - things are good.
According to my local CPA, the tax bracket doesn't increase for me until I net over $300,000. That is a lot of money to NET. Then again, I am in a low cost area up in the snow belt. The median family income around here is $39,000 --72.23.xxx.xx
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