During my prospecting over the last few months I have been getting the same question, is the property in the Opportunity Zone? 

I had no idea what any of these prospective buyers were talking about.  Clearly that is not a good position to be in when you are trying to sell someone on a property, or when you are trying to prove yourself to new clients and investors. 

If you are going to be in the real estate game for a while or have already been in for a while and are looking to grow your portfolio, this is something that you should be aware of.  The Opportunity Zone came from the recently passed U.S Tax Cut and Jobs Act of 2017. The Opportunity Zone was created to provide incentives for investment into low income areas, providing individuals who do so, a favorable tax treatment on their capital gains, by investing those funds into a privately-created opportunity fund.

In April of this year, 2018, Governor Baker selected 138 census tracts for Opportunity Zone designations.  The Tax incentive can only be claimed for investment inside of these specific zones. 

The three incentives for investors are, temporary deferral, step-up in basis, and a permanent exclusion of fund gains. 

Temporary deferral allows the investor to defer the capital gain on income reinvested into the opportunity funds.  The deferred gain must be recognized when the investor exits the fund, or on December 31, 2026. 

The step-up in basis, requires the investor to remain in the opportunity fund for 5 years, but allows the investor to reduce their original capital gains hit by 10%.  If they stay in the fund for 7 years, they are allowed a 15% reduction in their capital gains liability. 

The final incentive is the permanent exclusion of fund gains.  If the investor keeps their investment in the opportunity fund for 10 years, any gain from the opportunity fund are exempt from taxation. 

The “qualified opportunity fund”, simply means any investment vehicle which is organized as a corporation or partnership for the purpose of investing in a qualified opportunity zone property.

If you are an investor or looking to get into the real estate investment world, this is a very strategic way to build your portfolio.  

For more information, please email me at nick@herricklutts.com