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These FAQs will provide information about the Opportunity Zone program and the many benefits that Qualified Opportunity Funds provide.
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.
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.
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.
A capital gains liability can be deferred by reinvesting the capital gain portion of your sales proceeds (not including principal) in a qualified opportunity fund (QOF) within 180 days of realizing the gain. There is no dollar limit on how much gain can be deferred.
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.
The order and timing capital gains and losses are realized matters for tax planning.
Roth-like benefits without income or annual contribution restrictions.
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.
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.
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.
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.
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.
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.
There are two ways shares can be purchased with Park View OZ REIT:
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.
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.
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.
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.
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.
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.
The IRS has published a comprehensive Opportunity Zones FAQs page, providing answers to over 50 of the most frequently asked questions. This resource serves as a valuable reference for Opportunity Zone investors.
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