The Best Tax Planners use QOFS as a Compliment to 1031 Exchange Strategies
Park View OZ REIT, “The Easy OZ,” makes implementing Qualified Opportunity Funds (QOFs) tax strategies a breeze through public stock ownership (Stock Symbol: PVOZ).
A Flexible Alternative to 1031s
Both 1031 exchanges and qualified opportunity funds can substantially mitigate or eliminate capital gains tax but they work very differently. Usually, depending on the investor’s circumstances and goals, one option will clearly be superior to the other. The split between which option is best tends to be about even so knowing how each of these potent financial tools can be used is critical to sound tax planning.
About Park View OZ REIT
Park View OZ REIT (stock symbol: PVOZ) is the only Qualified Opportunity Fund (QOF) to offer the convenience and accessibility of public stock ownership. We offer investors and 1031 exchange practitioners unique options to enhance tax efficient portfolio construction.
The fund’s core focus is investing in residential multifamily properties located in designated qualified opportunity zones. Attractive areas to invest in are those with strong population and employment growth, which favors warm weather and low-tax states.
Why Choose Us
Park View OZ REIT is designed to allow investors convenient access to the significant tax incentives offered by QOFs. Additionally, our unique public stock structure allows the powerful QOF tax benefits greater tax planning utility.
We have:
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Removed any minimum or maximum holding periods
- A low minimum investment of $10,000
- Eliminated the complication of K-1 tax forms
- Low fees and no sales commissions
- No investor accreditation requirements so anyone can participate
Are you ready to see if Park View OZ REIT can enhance your financial and tax planning strategy?
Are you ready to see if Park View OZ REIT can enhance your financial and tax planning strategy?
Q&A
The Q&A below will provide information on our fund and look at some situations where QOFs can be either used with or in place of 1031s to achieve a superior tax planning strategy.
Can a QOF help defer boot?
Yes. The rules for executing a successful 1031 exchange are complex. Investors cannot take personal possession of the sale proceeds. The properties being exchanged into need to be identified within 45 days, and the purchase must be completed within 180 days. If the exchange is not carefully planned in advance, a planned exchange can become ineligible for 1031 tax deferral benefits. Luckily, none of these restrictions apply to QOF investments. This means QOFs are frequently called upon as a backup plan when a 1031 exchange cannot be used to defer a capital gain liability.
Can a QOF be an alternative solution if a planned 1031 exchange cannot be completed?
Yes. The rules for executing a successful 1031 exchange are complex. Investors cannot take personal possession of the sale proceeds. The properties being exchanged into need to be identified within 45 days, and the purchase must be completed within 180 days. If the exchange is not carefully planned in advance, a planned exchange can become ineligible for 1031 tax deferral benefits. Luckily, none of these restrictions apply to QOF investments. This means QOFs are frequently called upon as a backup plan when a 1031 exchange cannot be used to defer a capital gain liability.
What if my 1031 failed but my qualified intermediary has possession of the funds?
A unique situation arises when an investor intending to execute a 1031 hires a qualified intermediary (QI) to hold the sale proceeds but the exchange is not completed. If the QI holds the funds into a new tax year the investor can claim installment sale treatment by filing IRS form 6252. This installment sale treatment may be available for funds held by a QI within the same tax year but the issue is relatively new and untested. Under installment sale rules the day the QI releases the sales proceeds will be the investor’s new capital gain realization date. The final opportunity zone regulations allow taxpayers to begin their 180-day investment period on the date of receipt of installment sale proceeds or at their taxable year-end. This allows taxpayers a second chance at deferring their tax liability when a 1031 exchange does not go as planned.
Would a QOF free more capital on a sale with a high tax basis?
Yes. QOFs can be an excellent option for investors selling a high-tax basis property. For example, if the investor sells a property for $10 million and their tax basis is $9 million, to defer the $1 million capital gain a 1031 exchange would require the entire $10 million in proceeds be reinvested. A QOF investment only requires the $1 million capital gain be reinvested to defer the entire capital gain liability. Investors using the QOF would be free to use the $9 million in principal as they wish.
Can a QOF benefit estate tax planning?
Yes. 1031 exchanges offer investors a 100% basis step-up on death, eliminating all capital gains taxes due for the estate’s beneficiaries. This is a very tax-efficient strategy for most investors. However, if the investor’s estate is large enough to trigger estate taxes, then you do not want the step up in basis because it will be taxable at the 40% estate tax rate. It is better to defer the tax with a QOF which does not trigger a basis step-up on death, and pay the capital gains rate of 20% at the end of the deferral period.
What are the tax planning advantages of eliminating the lock-in period?
In the short term QOF investments can defer capital gains tax. Here are three tax examples of how this might be implemented in a plan.
1. A business owner chooses to retire and sells their business for a capital gain.
In the year of the sale their salary/income plus the capital gain may put them into a very high tax bracket. A QOF investment would allow them to defer the realization of all or a portion of the capital gain into lower income post-retirement years. They could then trigger portions of the capital gain by selling a portion of their QOF stock, potentially spreading the gain across multiple tax years.
2. Insurance against a future loss for traders in highly volatile assets, like Bitcoin or AI stocks.
If a trader, for example, has a $600,000 capital gain in 2024, a $400,000 capital gain in 2025, and then suffers a loss of $1,000,000 in 2026:
A. By employing a QOF the trader defers the realization date of their capital gain, finally triggering it when they suffer a loss 2026 by selling the QOF shares. This brings the tax realization dates of their gains and losses into the same tax year.
B. They could choose to pay the federal tax totaling (20%+3.8%) = 23.8%, 23.8% x $1,000,000 = $238,000 for 2024 and 2025.
By employing a QOF strategy the investor gets to keep their $238,000 in cash and owe no taxes. If the investor chooses to pay the taxes, they would be out $238,000 but would have a tax loss to carry forward. I would rather have the cash!
3. Lowering the tax rate on a 1231 capital gain.
1231 assets (business assets held for more than one year) are taxed asymmetrically with losses recognized at income rates and gains at capital rates. This is very favorable for tax payers. If, however, a gain is offset by a loss within the last five years then the gain is taxed at the higher income tax rate. A QOF could be used defer the realization date of the capital gain beyond the 5-year look back period, lowering the tax from income rates to capital rates.
There is an ongoing bipartisan effort in Congress to lengthen the deferral period past its current planned end date of December 31st 2026.
What is the advantage of eliminating maximum holding periods?
The biggest tax benefit offered by a QOF investment is the potential for tax-free compound growth (aka: The eighth wonder of the financial world). Once an investor achieves a 10-year hold in the QOF they can elect to step-up their cost basis 100%, eliminating any capital gain liability. This benefit is often thought of as a 10-year benefit, but that is just the beginning because the benefit does not expire until 2047 – another 23 years! Because compound growth curves accelerate in the outer years, roughly 84% of tax benefits are derived after year 10. This is a big advantage enjoyed by Park View OZ REIT investors. Unfortunately, a large majority of QOFs have planned liquidations shortly after the 10th year, ending the tax-free compound growth prematurely and forfeiting a huge potential tax benefit.
What is the advantage of eliminating investor accreditation requirements?
It makes accessing QOF tax incentives significantly easier. Because Park View OZ REIT is a public company, we have no accreditation requirements and anyone can invest in our shares. By contrast, almost all QOFs still have accreditation requirements which prohibits most of the investing public from participating. Additionally, even if you meet the accreditation requirements, turning over financial records to prove it can be a hassle and feel invasive. We believe that removing the accreditation requirement works well for our shareholders.
How do Park View OZ REIT's fees compare to other qualified opportunity funds?
We always aim to be the lowest cost option for investors. Most of our competitors are partnerships which tend to have higher fees than a REIT. For example, most qualified opportunity funds charge a management fee of roughly between 1% to 2% with and average of 1.5%. Our management fee is .75%, so half the average funds fee.
Why did Park View OZ REIT feel it was important to keep minimum investment requirements low?
Many QOFs have investment minimums of $100,000 or more. We knew that investors often had capital gains that were not big enough to qualify for the typical QOF minimum investment. We give these investors a practical solution by having a low subscription agreement minimum of $10,000. Investors may also buy as little as one share of our stock in the public markets. The tax benefits are the same regardless of where the shares were bought.
Why is transparency important for investors?
The ability to understand and track how an investment is performing is crucial to making sound financial planning decisions. We strive to provide our investors transparency in several ways. First, we emphasize providing strong direct investor communications by answering any questions quickly and accurately. Investors can also get information about the fund from several sources online with the most information located on Park View OZ REIT’s own website. Additionally, because we are a public company all of our import documents including our periodic earnings reports, annually audited financials and our offering documents are available on the securities and exchange commission’s website through their EDGAR system.
What is a qualified opportunity fund (QOF)?
A qualified opportunity fund is an investment vehicle that is organized for the purpose of investing in qualified opportunity zone properties. The IRS keeps track of investment opportunity zone tax incentive compliance through QOFs. A QOF needs to have at least 90% of its assets invested in tangible qualified opportunity zone properties to stay compliant.
What are the two tax incentives offered by a QOF?
1. Almost any type of capital gains liability can be deferred until the QOF is sold or December 31, 2026.
2. After holding a qualifying investment in the QOF for 10 years, any capital gain achieved by the QOF can be eliminated.
The second benefit is by far the most powerful. It allows investors to compound growth tax-free until you sell the QOF or 2047.
Who is eligible for QOF tax incentives?
Anyone who owes a capital gains liability to the U.S. government is eligible. In most cases, once the gain is realized, it must be invested into a QOF within 180 days, but there are exceptions and extensions to this rule. Importantly, unlike 1031 exchanges, you only need to invest the gain into the QOF to qualify for the tax benefit. The principal portion of your proceeds is free for any use.
What is the purpose of opportunity zone tax incentives?
The purpose of opportunity zones is to create a positive social impact by spurring economic growth and job creation in low-income communities designated as opportunity zones. It offers significant tax incentives for participating investors. States nominate communities for the designation, and the U.S. Department of the Treasury certifies that nomination. Opportunity Zones were created under the 2017 Tax Cuts and Jobs Act. There are more than 8700 designated opportunity zones located across all 50 states.
How can shares of Park View OZ REIT be purchased?
There are two ways shares can be purchased with Park View OZ REIT:
- Shares can be bought through our subscription agreement, which offers a fixed price of $100 a share.
- They may be purchased under the stock symbol “PVOZ” through a brokerage account at a price that fluctuates with the market.
The shares of stock and tax benefits are identical regardless of how they are acquired. We recommend you review our offering circular before making a purchase.
Why did Park View OZ REIT choose to go through the rigorous process of providing publicly traded shares of stock?
We believe a QOF with public stock significantly widens accessibility to QOF benefits. Additionally, the flexibility of public stock also opens up a myriad of financial planning strategies. Everyone’s financial needs are unique. Some investors may only want to defer their capital gains for a year, others may want to hold on for tax-free compound growth until the benefit expires in 2047, and still others may be uncertain of their future financial needs and want to keep their options open. We strive to provide our investors with the best possible opportunities.
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Schedule a free consultation to discuss how a QOF might be the right 1031 alternative for you.
These pages are prepared for informational purposes only and are not offered as legal, tax, or investment advice. All content provided is of a general nature and does not address the particular circumstance of any particular individual or entity. We encourage you to seek guidance regarding your individual financial needs from legal, tax or investment professionals. Investments, including our shares of stock, have inherent risks including the risk of principal loss.