Opportunity Zones – The Tax Cut and Jobs Act 2017
In each state the Governors selected what areas would be Opportunity Zones. These areas were vacant land or very blighted and the development would be from the ground up. The OZ was to create incentives to develop these areas. With that in mind the Governor of Puerto Rico determined that the whole island was an Opportunity Zone. The Governor of California determined that part of San Jose– part of Silicon Valley — was an Opportunity Zone. In Pennsylvania the Governor determined area near the University of Pennsylvania was an Opportunity Zone.
Capital gains only qualify for Opportunity Zones. These gains can be real estate capital gains, stock market capital gains, gains from the sale of art, furniture, boats etc.
So we will examine the OZ through a simple example:
A couple buy a house for $500,000. 15 years later they sell the house for 1,500,000. As they are each on the deed each has a $250,000 exclusion from capital gaines taxes. So in this example they would be paying taxes on $500,000. What they would have in their pocket assuming they had no financing was a nice $1 million of cash. The $500,000 can go into an OZ
When you invest in an Opportunity Zone your taxes on your capital gains are not due until you submit in 2027 your 2026 tax return. As the Opportunity Zones offered by me are multi-property the Sponsors plan to have finished, leased and refinanced in 2026 sufficient property for you to pay from the refinance proceeds your taxes in 2027. No taxes are due from the refinances. As the multiple properties under construction are completed you receive additional refinance monies plus possibly distributions from the Tenants’ rents.
Now to rules of the Opportunity Zone —this is a ten year commitment.
As in order to lease a property you have to build it first, the investor is not going to receive any possible distributions for at least three years approximately.
When you file in 2027 your 2026 tax return you must pay the capital gains taxes you previously deferred.
At the end of 10 years all of your returns from your investment incur no taxes.
You have 180 days from receipt of your capital gain to invest in an Opportunity Zone
The Sponsor of an Opportunity Zone
Has a plan for construction, leasing, distributions and selling the property after 10 years.
Most Sponsors plan to complete a building pre leased and refinance their Construction loan to a permanent during 2026. With the distribution of those non taxed refinance proceeds you have the cash with which to pay the taxes you did not pay in 2023
With a sale 10 years later–
And with the sale – the potential for cash without the IRS!
With all the opportunity zones out there I have chosen to promote two of them. Both Sponsors have deep pockets with a history of integrity, experience and unique capabilities to strive to complete what they start.
The above does not include all possible small print and requirements.