Qualified Opportunity Funds (QOFs) offer powerful tax incentives, and the amount of capital invested in them has exceeded expectations. Yet barriers like investor accreditation requirements have meant that most of the capital has flowed from a narrow group of investors. Removing these impediments is important to unlocking the full potential of Opportunity Zones for both investors and communities.
When it comes to tax planning, QOFs are hard to beat. They offer the potential for “Roth IRA-like” tax-free growth until the benefit sunsets in 2047. Tax-free compound growth is a proven path to building wealth. However, there are several reasons why the average taxpayer/investor is not participating in QOF tax incentives. Those include long capital lock-up periods of typically 10 years, complex partnership tax forms, high investment minimums, and stringent investor accreditation requirements.
Only 15 to 20% of U.S. households meet accreditation requirements, so most investors are excluded from these funds. Additionally, even if you do qualify, proving that you are accredited can be an unpleasant and invasive process.
Why Do So Many Qualified Opportunity Funds Have Investor Accreditation Requirements?
- Undergo rigorous SEC vetting to prove they meet transparency and compliance standards, allowing anyone to invest.
- Require investors to prove they can protect themselves by meeting accreditation requirements (e.g., $1 million net worth, excluding primary residence, or $200,000 annual income).”
Most fund managers choose to put the onus on the investor because they can get the QOF to market quicker and easier if they skip going through the rigorous SEC vetting process themselves. If the issuer has been through the vetting process, then any investor is free to purchase and sell the securities without restrictions in the secondary market. This is not the case for funds with accreditation requirements, where legal assistance is typically needed to transact a sale of the security.
Why Is It Important to Broaden QOF Participation?
For many investors, this incentive should be an important tool for retirement planning. Understanding the mechanism by which QOFs eliminate tax is important. After holding a QOF for 10 years, investors can elect to adjust their investment’s cost basis to its current market value. This not only eliminates the capital gains tax, it eliminates the income from the capital gain. This is critical for future-proofing your retirement from higher tax rates or new taxes on capital gains income. Examples include the net investment income tax implemented in 2013 and the previous administration’s attempt to raise the marginal tax rate on capital gains income to 44.6%. Fortunately for QOF investors, anything times zero is zero. It gives investors greater peace of mind knowing that a portion of their assets will not be claimed by the government at an unknowable future tax rate or by new, unforeseen taxes.
For communities designated as opportunity zones, it means having an influx of capital to help kick-start their economies and break the cycle of non-investment.
The concept of saving thousands of dollars in taxes on your investment gains while helping revitalize a struggling community is compelling. We believe that by eliminating accreditation requirements, we are taking a positive first step toward broadening participation in this important program.
Park View OZ REIT believes eliminating investor accreditation requirements can help democratize access to Opportunity Zones, benefiting both investors and undercapitalized communities.
Learn more about Opportunity Zone tax incentives and Park View OZ REIT.
Park View OZ REIT: The Streamlined Approach to QOF Investing
Unique Public Access: Park View OZ REIT is the only Qualified Opportunity Fund with publicly traded shares (trading symbol: PVOZ).
Flexible Entry Options: Begin with as little as one share on the open market or $10,000 through our subscription agreement.
Investment Timeline Freedom: Exit at your discretion without penalty. With no planned 10-year liquidation, maximize potential tax-free growth through 2047.
Simplified Tax Reporting: Avoid the complexity and delays of partnership K-1 tax forms.
Open to All Investors: No accreditation requirements to participate.
Convenient Purchasing Methods: Buy shares through your existing brokerage account or directly via our website’s electronic subscription agreement.
Are you ready to see how QOFs can benefit you?
Materials provided by Park View OZ REIT or our affiliates have been prepared for informational purposes only and are not intended to provide or be relied on for tax, legal, or financial advice. You should consult your own tax and legal advisors before engaging in any transaction.