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Qualified Opportunity Zone Program

The greatest tax-incentive program since the creation of the Roth IRA...

The Tax Cuts and Jobs Act of 2017 created a generous tax incentive program to promote economic development via the Opportunity Zone program. Opportunity Zones are 8,762 low-income census tracts located in all 50 states and Puerto Rico that were selected by governors and subsequently certified by the U.S. Treasury.

For taxpayers with unrealized capital gains, the opportunity to achieve significant tax benefits is available, including deferral, reduction and exemption, by realizing capital gains and deploying proceeds (i.e. the gain, not the cost basis) into a Qualified Opportunity Zone Fund.

Opportunity Zone Program - Regulation Update

The Qualified Opportunity Zone Program (“QOZ Program”) final regulations were released on December 19, 2019 by the U.S. Treasury Department which, among other things, provided additional flexibility for K-1 partnership gains.

As a result, investors with K-1 partnership gains realized between January 1, 2020 and December 31, 2020 may be eligible for an investment in the QOZ Program along with the associated tax benefits until September 11, 2021.

K-1 PARTNERSHIP GAINS

Investors with K-1 gains realized in 2020 have until September 11, 2021 to complete an investment in a QOF (assuming a calendar-year partnership) and, going forward, have three options for calculating their 180-day window resulting in additional planning options for financial advisors well beyond March 31:

1. 180 days starting with the date the asset is sold by the partnership;

2. 180 days beginning on the last day of the partnership’s taxable year (December 31st for a calendar-year partnership); or

3. 180 days starting on the date the partnership’s tax return is due, without any extension (March 15th for a calendar-year partnership).

Summary of QOZ Tax Benefits

Opportunity Zones

Deferral of Capital Gains on ALL Asset Sales

Deferral of Capital Gains – Individuals or corporations with any capital gain – from the sale of any asset (e.g., stock, real estate, a business) – can defer taxation on an unlimited amount of realized gains until 2027 if the gain is reinvested within 180 days into a Qualified Opportunity Zone Fund.

Increase Basis 10% or 15%

Reduction of Capital Gains – Capital gain liabilities associated with the initial sale proceeds are reduced by 15% (Expired 12/31/2019) if Qualified Opportunity Zone investments are held for at least seven years. Capital gains liabilities are reduced by 10% (EXPIRES 12/31/2021) if held for longer than five years and less than seven years.

Hold QOZ 10 Years - ZERO Tax

Tax Exemption/Exclusion – Investors pay no capital gains tax on new gains generated by a Qualified Opportunity Fund if held for more than 10 years.

Risks of Qualified Opportunity Zone Funds

1

Management Control Risks

Poor management plans or operational execution could reduce the income and overall value of the properties. Managers of the Opportunity Zone Funds have 31 months to develop identified properties and invest as much in the project as was used to acquire the properties For those investors that prefer to participate to take active roles in strategy and management of their real estate investments, investing in a QOZ fund would not be a good fit.
2

Lack of Liquidity

Investing in a QOZ fund requires a holding period of ten years. As with most investments, locking in any significant amount of funds over a long period of time causes holding risk for passive investors. Although the tax incentives in year five, year seven and year ten act as checkpoints for investors the sale of the investment in a QOZ before year ten will trigger a capital gain on any appreciation during that holding period.
3

Quality of Qualified Opportunity Zones / Development Risks

The majority of QOZs are in distressed areas, which means the most attractive locations will be snapped up quickly. In addition, the attractive locations may become expensive as developers compete over the best locations. Not all OZs are good investments. Some OZs may not be redeveloped within the 10-year period, thereby potentially triggering another economic down cycle.
4

Economic Risks

QOZ properties are subject to economic risks in the communities in which the underlying real estate properties are located. Economic downturns may increase vacancy rates, or cause rental rates to decline, increased tenant turnover, or other factors, all of which may reduce income or the value of the properties. As with any type of income-oriented investment, interest rate fluctuations could reduce cash flow potential and price appreciation. There is no guarantee an investment in a QOZ will result in a profit, and it may lose money.
5

Regulatory Risks

QOZs are a relatively new area of investment. There are rules and questions that may be considered unanswered.

THE BIG IDEA

Opportunity Zones

Unlock capital in low cost basis stock positions

Reallocate capital for impact investing

Promote real estate development, economic growth, and job creation

Single stock and equity market exposure

Reallocate capital for asset class and portfolio diversification

Promote real estate development, economic growth, and job creation

"We need more business and civic leaders to join us in promoting policies to unleash America's full potential. Policies that incentivize investment in underserved communities, including... Opportunity Zones in the new tax reform law, can encourage support for parts of America that continue to struggle with poverty and job growth."

Jamie DimonChairman and CEO, JP MOrgan Chase (Axios.com OpEd, 3/21/18)

Qualified Opportunity Zone Program

Overview

    • Opportunity Zones are 8,762 low-income census tracts located in all 50 states and Puerto Rico that were selected by governors and subsequently certified by the U.S. Treasury.
    • Taxpayers with unrealized capital gains may achieve significant tax benefits, including deferral, reduction and exemption, by realizing capital gains and deploying proceeds (i.e. the gain, not the cost basis) into a Qualified Opportunity Zone Fund.
    • Qualified Opportunity Zone Funds must hold at least 90% of their assets in designated Opportunity Zones.
    • Taxpayers must invest all or a portion of realized capital gains into a Qualified Opportunity Fund within 180 days of the asset sale to take advantage of the program’s tax incentives.

"To create a brighter tomorrow for communities that have been left behind, we need to capitalize on the private sector resources that can help boost these areas in ways we haven't seen before."

Sen. Tim Scott(R) South Carolina (USA Today, 2/14/18)

IMPACT INVESTING

Capital inflows into low-income census tracts should produce meaningful social benefits:

JOB CREATION

REDUCTION IN POVERTY RATE

REDUCTION IN UNEMPLOYMENT

INCREASE IN NUMBER OF AFFORDABLE HOUSING UNITS

INCREASE IN MEDIAN INCOME

INCREASE IN HOME OWNERSHIP

Endowment Wealth Management

Your fiduciary advisor in Qualified Opportunity Zone Fund investing

Get Started

Your first step in Qualified Opportunity Zone investing is learning whether or not it is right for your situation. As a fiduciary advisor, Endowment Wealth Management will objectively look at your situation and advise whether or not Qualified Opportunity Zone investing is a smart choice for you.

If there is a basis to move forward, Endowment Wealth Management will help you find quality funds to invest in, curated by our experienced team of investment professionals.

If you think that investing in a Qualified Opportunity Zone Fund might be something you’re interested in:

  • Call us at 920-785-6010,
  • Click the button below to schedule an appointment to talk with one of our elite wealth advisors.
Schedule a Consultation

Additional Resources

Opportunity Zones

  • List of designated Qualified Opportunity Zones (QOZs):  This spreadsheet was updated June 14, 2018, to reflect the final QOZ designations for all States. (See IRS Notice 2018-48, 2018–28 Internal Revenue Bulletin 9, July 9, 2018, for the official list of all population census tracts designated as QOZs for purposes of Internal Revenue Code §§ 1400Z-1 and 1400Z-2.)
    • Based on nominations of eligible census tracts by the Chief Executive Officers of each State, Treasury has completed its designation of Qualified Opportunity Zones. Each State nominated the maximum number of eligible tracts, per statute, and these designations are final. The statute and legislative history of the Opportunity Zone designations, under IRC § 1400Z, do not contemplate an opportunity for additional or revised designations after the maximum number of zones allowable have been designated in a State or Territory.
  • For a map of all designated QOZs, click here.
    • To view all designated QOZs, click on the “Layers” tab on the menu on the right hand side of the screen. Select “Opportunity Zone Tract” and unselect “2011-2015 LIC Census Tract,” and zoom in to a specific area on the map. Designated QOZs will appear in blue. (Please note that if other layer options selected, it will change the colors of the tracts.)
    • To view a specific census tract, enter the tract number in the search bar, select “2011-2015 Census Tract” by clicking on the mailbox symbol on the left of the search bar, click search, and select the census tract number that appears in the results below.
    • Additional guidance on visualizing designated QOZs can be found in this user guide.
  • Additional Resources
    • IRS Revenue Procedure: Provides information on the eligibility criteria for census tract designation as a Qualified Opportunity Zone and the nomination and designation process.
    • Opportunity Zones Information Resource, with sortable lists by State of all census tracts originally eligible for designation as a QOZ.

Opportunity Zones Shapefile:  This Zip file contains a Geographic Information System (GIS) shapefile of all population census tracts designated as QOZs as well as all population census tracts originally eligible for designation as a QOZ. See Readme text document for additional detail.

The content on this page is neither an offer to sell nor a solicitation of an offer to buy any security which can only be made by prospectus. Investing in real estate and Qualified Opportunity Zone investments may not be suitable for all investors and may involve significant risk, which include, but are not limited to those highlighted above. QOZ investments involve fees, which will reduce income and investment returns. Endowment Wealth Management, Inc. and its employees do not provide tax or legal advice, as such advice can only be provided by a qualified tax or legal professional, who all investors should consult prior to making any investment decision. For additional risks of alternative investments, please click HERE.