Benefits and Myths: Tax Advantages of Opportunity Zones

[@boomersD9CAT]

Finally someone who explains in layman’s terms how opportunity zones work ! 👏👏

[@pinefinancial]

Thank you!

[@HasanDaddy]

Best explanation I’ve finally found on this matter (holding 10+ years etc). Thank you!!! A lot of people make videos about this matter, and don’t know what they’re talking about.

[@udeeization]

Nice simple to the point breakdown. Thank you!

[@pinefinancial]

Thank you for the comment!

[@Breaking_barriers100]

One of the best explanations on the internet!!!

[@dianafedorov9559]

This is the MOST CLEAR explanation. Thank you!!!

[@pinefinancial]

Thanks Diana!

[@atoz1765]

Very thankful for this VERY clear explanation!

[@pinefinancial]

Thank you!

[@Musiclover32__]

Question: i just built a new home in an opportunity zone. I was not aware of using funds specifically for opportunity zones and used my own. With that being said, since it is a new build and in an opportunity zone…. Would i be able to refinance with an opportunity zone fund ? Asking because i would like to take advantage of the benefits an opportunity zone brings.

[@pinefinancial]

Hi Andre - I think you might be out of luck on this one but I am not a tax professional. The way I understand this is that you need to invest in the OZ through an OF. If that did not occur, I am not sure you can unwind that. With that said, I also believe you need to do the improvements to an investment not a personal home. The idea of the tax benefit to to help bring housing and jobs to certain areas. There may be a loop hole I am missing here and it is a good idea so I would check with a tax person just in case I am wrong.

[@Musiclover32__]

@@pinefinancial will double check with a tax person thank you. I forgot to mention i built a duplex so it will be for others to live in, not a personal home!

[@stupidtp]

Does this mean its late to get the 5/7 year tax deferrals now that Dec 2026 is less than 2 years away?

[@karlkloster]

As far as investinng in a QOZ from a real estate sponsor, if an investor needs to liquidate (death, diability or optional ... which are not allowed) can they sell their shares?

[@pinefinancial]

Of course but you would lose out on any benefit you no longer qualify for. For example if it is over 5 years but under 7, you would only qualify for the 10% discount on the previous gain that you rolled over and no benefit on the gain in the current asset.

[@ThePantheistPope]

While Operating and holding the QOZ do you get tax benefits in the business that is being operated in an Opportunity zone? Or is that just business as usual?

[@kevinamolsch8540]

Hi. Thanks for the question! My understanding is the tax benefits are in the gains on the asset not on business income. You might want to check with a CPA because I understand this with real estate far better than I understand it with businesses but I do not see any ordinary or earned income.

[@jamesmurphy9426]

Fantastic spend money to avoid taxes

[@jatinahir3819]

if I invest in ozf what happens to depriciation recapture on my original property which I sold to realize gains ? Is that deferred too? Say I have 90k cap gain and 140k depriciation recapture. I'm in 24% bracket NY resident. Non accredited investor. How much should I invest in ozf to defer it all ? Most funds do no accept under 100k. I'm ok to put any/all money from my sale proceeds but not extra from my pocket.

[@jatinahir3819]

@Kevin Amolsch thank your for the explanation. I understand that Depreciation Lowers the basis and hence increases the cap gain, but depreciation portion of it is taxed separately at different rate than the cap gain ( appreciation: selling price - buying price - commissions), am I correct ?

[@drewstewart7725]

Can I spread out the gain payment or does it have to all be paid in one if I keep the money invested? I'm working on a gain that will put me over the $440k threshold if i realize it all in one year. I would be under the threshold if I were to pay 18% per year for 5 years (assuming 10% forgiven). My current gain is $700k. If I put $700k in an OZ can I keep the money in the OZ and pay $126k of the $700k gain every year for 5 years while still keeping the $700k in the OZ?

[@pinefinancial]

Hey Drew. What a great question! I assume you are trying to keep your gains small to stay at the lowest capital gain rate? One of the benefits of the OZ investment is the capital gain deferral. I am not sure about the gain rate you will be paying when it comes time to pay but my guess is that you will be paying based on when the gain was realized (the same year you made the investment in the OZ in most cases). With that said, I am not a CPA so this is one I would run by a CPA for sure. I also know the IRS put out a FAQ page recently with a ton of great info. www.irs.gov/credits-deductions/opportunity-zones-frequently-asked-questions

[@coryhansen]

Great video to help clear up a few of the myths about OZ's! Do you have any videos on investors who invest in businesses rather than real estate?

[@pinefinancial]

Thanks Cory - When researching OZs and how they may or may not be able to help our followers and our clients, we were really focused on the real estate side. I do know there are ways to invest in a business but I honestly cannot speak on it.

[@coryhansen]

@@pinefinancial thanks for the response.

[@JohnCunninghamTeam]

nicely presented. Would entitlements qualify as "a substantial improvement" within that 30 m month window of time?

[@pinefinancial]

Hey John. Thanks for reaching out. I do not believe so. I believe that you can include soft costs when calculating the total amount of improvements but they IRS will be looking for actual physical improvements. I do want to point out this is how I understand it and you may want to run this by a CPA if you fall in this category.

[@stevenjgarner]

My understanding is the whole QOF program is scheduled to sunset as of December 31, 2026, making any investment since December 31, 2021 unable to become fully realized. Is that true? Are there any work-arounds?

[@kevinamolsch8540]

Hi Steven - I believe the Dec 2026 deadline is when you need to realize gains that were deferred. No workarounds that I know of unless you sell the asset before then and 1031 them. I dont think that will work if the gains was from an asset that is not like kind but I would ask your CPA about that option.

[@joelgardner8270]

So if you use 100k capital gain towards the purchase of a 1M building, after 10 years you sale that building for 2M, since you only invested 100k initially (10% of the purchase price) from a capital gain, does that mean you only don't pay taxes om 10% of the 1M gain after holding 10 years, or do you not pay taxes on the entire 1M gain?

[@pinefinancial]

Hi Joel. Thanks for the question! You would not pay tax on any the $1 million gain. 100% tax free gain. You would however pay taxes on any previous tax deferred gains that you rolled into the investment. In your example, it would be the $100k. That $100k should be taxed at the long term capital gain rate.

[@Kalosius]

I live in Denver and I am selling a place in the mountains, I am small potatoes. I think that the time has passed to get the full 15%, only 10% at this point correct? Some of the zones in Denver are prime real estate like right near downtown and near country clubs. Are all the opportunity zones in funds? A lot of these areas are going to get a massive investment and most likely put up expensive condos or homes because they are prime locations. How do you lose money on this?

[@pinefinancial]

HI Evan - I agree with you on the selection of the OZs in Colorado. I was very surprised to see some of the locations in areas that were already in transition (like around the stadium). Seems like decent investments if you have a long term focus. To clarify the zones are just areas on a map. That does not mean those properties are in a fund. You will need a fund in order to take advantage of the tax benefits.

[@douglasc.shearer1164]

Question... Can I buy into an already fully improved opportunity zone to receive the long term 7 year tax benefits? Thanks to anyone who can answer!

[@pinefinancial]

Here is the Opportunity Zones Map: eig.org/news/opportunity-zones-map-comes-focus

[@jdarst100]

If I buy a strip mall in an Opportunity Zone for $2.5 Million do I have to improve by putting another $2.5M into the mall?

[@pinefinancial]

My understanding is that you would deduct the land value from the $2.5 and use that number as the benchmark for what is needed to invest into the project. If the land alone was worth $500k than would bring your basis in the improvements to $2 million which is what would need to be invested into the project. (Many OZ investments are new construction projects for this reason) Most counties have a land value listed in their assessment so I would probably use that but I am sure you can use other methods to justify the value of the land.

[@SOLIACTO]

@5:55 you said that the initial investment must be at the same time as the fund is created...OR... it must have substantial improvement. Is that correct? or was it supposed to be an "and"? It made it sound like I could just buy a rental and create a LLC at the same time , hold it for 10 years and have no gain.

[@pinefinancial]

What a great catch. Sorry for the confusion. The way I understand is that you need to use a newly formed entity designated as an Opportunity Fund AND either build new OR substantially improve. Buying a rental and holding for 10 years wont work unless you substantially improve the property within the allotted time.

[@the_village_elder]

@@pinefinancial any ideas on how to designate your newly created LLC as an Opportunity Fund?

[@pinefinancial]

@@the_village_elder It is most common to use an LLC for an opportunity fund. First you need to be sure your LLC has at least 2 members and will be filing a partnership return. After that you will need to file a form with the IRS when you file your return so it should be pretty simple. They are really trying to make this easy. There are likely big dollars at stake though so I would consider consulting an attorney and for sure your CPA.

[@714boba2003]

Could do please do a video specifically on crypto gains?

[@pinefinancial]

Thanks for the comment. We are not in the crypto business and don't really understand it so this is not something we can speak on. Sorry : (

[@Zuddybuddy]

Your logo looks like Pane Financial..... 😜

[@ArabellaPottery]

Not worth the hassle. The law already states that if you buy a house. 1. You must live in it for two years out of the last five. 2. And if you are married up tp 500k of profit is tax free. Or If you are single up to 250k of profit is tax free. 3. If you keep the property until you die, and you have 700k in profit your heirs will inherit all the profits tax free when they sell the house. Even though the profit is over 500k for married couples or 250k for single people.

[@angelogarcia9241]

1031 and opportunity zone is just for the one who have a group of attorneys and CPA working for them at all times. Is not for the regular guy. The only one making the money is the government, all the "rules" were made to make you "fail" and to punish you very hard one way or the other. I sold my building, now in 1031 I'm going crazy knowing that if I don't find a replacement property I have to pay 30% or more on the profit.... I forgot rule #2 in Real Estate " NEVER SALE YOUR PROPERTY, NEVER, NEVER, NEVER"

[@pinefinancial]

Oh no Angelo!! I have heard many stories like this. One way to avoid this in the future (if you ever decide to sell again) is the reverse 1031. Check this out. kzbin.info/www/bejne/i3m6dZmNoLZ3hKM Thanks for the comment!!

[@jatinahir3819]

I'm In the similar spot. Sold the headache property and now it gives me another headache. stupid 1031 45 day rule. All OZ guys say u have to be acceredited investor. And my accredition went away with that property. This is not for regular guys. All the videos you see about oz they talk about minimum 1m cap gains. Cmon.

[@MikeR8898]

7% of $1,000,000 is $70,000. I think you had the math right originally?

[@pinefinancial]

If it was one year you are correct. I was assuming over 10 years and took out compounding returns to try to keep it simple. This stuff is never simple though : ) Thank you so much for the comment Mike!!

[@MikeR8898]

@@pinefinancial Ahhh that 7% appreciation is per year! +$700,000 over 10 years...wow! I don't actually own any property or anything like that, but understanding opportunity zones may help me 10+ years down the road. Thank you for your reply! Best Wishes, Mike

[@earthman3000]

Thanks. If you do a 1031 like kind exchange of real estate into a proper OZ real estate and do the required substantial improvement and then sell it after 10 years is there any tax on the deferred gain coming over from the original 1031 exchange? Or do you have to pay the tax on that original exchanged property in 2026 despite the fact it was a 1031? If the later is the case then the Oz strategy may not be preferable over a regular 1031 where you don’t have that tax burden in 2026??

[@pinefinancial]

Hi Earth Man. You may want to check with your CPA but the way I understand it is you will need to pay taxes on any deferred gains. With that said, I would certainly believe that you can continue to defer the 1031 gains if you do another 1031.