My friend, a Stanford professor, runs a fund. 10-year lock-up, 5% cash-on-cash after 6-12 months of investment. Contact me if you are interested in this opportunity.
Best Reference: IRS
- Starting in 2018
- Temporary deferral of taxes on previously earned capital gains and 1231 gains. Investors can place existing assets with accumulated capital gains into Opportunity Funds. Those existing capital gains are not taxed until the end of 2026 or when the asset is disposed of. [Caution! 2026 tax rate might be higher for you depending not only on your then income but also then tax rate.]
- Basis step-up of previously earned capital gains invested. For capital gains placed in Opportunity Funds for at least 5 years, investors’ basis on the original investment increases by 10 percent. If invested for at least 7 years, investors’ basis on the original investment increases by 15 percent. [Caution: Fade away by Dec. 2021]
- Permanent exclusion of taxable income on new gains. For investments held for at least 10 years, investors pay no taxes on any capital gains produced through their investment in Opportunity Funds (the investment vehicle that invests in Opportunity Zones).
To make a profit, essentially a taxpayer must sell an asset and generate a capital gain. The taxpayer then puts the capital gain into a Qualified OZ fund. There is ultimately delay and reduction of taxes owed to the government — if held for 10 years, that taxpayer can pay zero capital gains tax on the new investment in the fund. I think that’s the real prize: if you hold your investment in some of these opportunity zones from funds, you essentially pay no tax on your returns, which could lead to a 30-40% increase in your annualized return. That’s what I want people to really understand: this isn’t a small tax benefit, it’s pretty massive.
One of my mentors told me that you really need to follow policy, because policy is how capital moves. If you think about mortgage interest tax deduction, that’s why we have such a huge single family home real estate economy. You look at 401ks, that’s why we have this huge retirement market. It’s all because of government incentives. So I see opportunity zones as very structural incentives that can have sweeping effects around impact investing.
Tax benefits under OZs specifically exclude the development of some private or commercial entities, like golf courses or country clubs, to avoid the creation of businesses that wouldn’t be of use to these communities. Still, under the law, luxury hotels are just as likely to be built as affordable housing units in these areas.
Use income as a criteria
In Kauai, Hawaii: Wealthy people live in multi million homes. However due to the low income there, it is also OZ.
Development cost must larger than the land value.