FINDING OPPORTUNITIES IN OPPORTUNITY ZONES Shannon K. Lenzini
We Need a Taxpayer ?
What’s in in it f it for or me? me?
• Def eferr erral : Through investment in an Opportunity Fund, an investor can Oppor Opportunit tunity y temporarily defer capital gains taxes until 2026 Zon Zone e • Redu educt ction on : The investor can reduce the original amount of capital Benef Ben efits its gains by 10% if the investment is held for 5 years and another 5% if it is held in the Opportunity Fund investment for 7 years. • Ex Exem emption ption : Capital gains on qualified investments accrue tax-free if held for at least 10 years.
Case Study: The Basics June 30, 2030 Gronk sells its investment for $2M; Basis in the qualified opportunity fund December 31, 2026 investment is deemed to Lessor of (i) $900K of be FMV; i.e., no tax is the $1M deferred capital June 30, 2020 payable! gains or (ii) the FMV of Gronk makes qualified the qualified opportunity zone opportunity fund investment of $1M investment are taxed; June 30, 2025 Basis in the qualified Gronk’s basis in investment opportunity fund in qualified opportunity fund investment increases to increases from $0 to $100K $1M 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Investment in a Qualified Opportunity Fund Who : Taxpayer with eligible capital gains What : Equity Investment Where : Qualified Opportunity Fund When : 180 days X Starts on the day the capital gain would be recognized if TP did not elect to defer. Target
Qualified Opportunity Fund (1) Any investment vehicle taxed as a Partnership or Corporation ( 2) With the Purpose of Investing in Qualified Opportunity Zone Property TopTipsClub (3) That holds at Least 90% of its Assets in QOZ Property
Qualified Opportunity Fund Self- Certify Georgia Tech
Case Study: Investment Timing January 1: June 1: Gronk reinvests the capital Gronk sells his Boston condo, gains in a qualified which results in capital gains opportunity fund January June December
Case Study: Investment Timing January 1: August 1: Gronk reinvests the capital Gronk sells his Boston condo, gains in a qualified which results in capital gains opportunity fund January June December
Case Study: O-Fund Deployment of Funds June 1: O-Fund invests 90% December 31: August 1: February 1: of assets in QOZP Second 90% First 90% O-Fund test date test date is formed January June December
Case Study: O-Fund Deployment of Funds August 15: December 31: August 1: O-Fund invests 90% February 1: Second 90% First 90% O-Fund of assets in QOZP test date test date is formed January June December
Qualified Opportunity Zone Property QO Fund QO Fund Direct Indirect Exchange Bar and Grill QOZ Business QOZ Stock/Pshp. Property Interest of QOZ Business QOZ Business Property
Qualified Opportunity Zone Business Property Acquired by Purchase after Tangible Property Dec. 31 2017 Trade WSJ or Business Substantial Substantially Improvement Adobe Original all 30 months Use in QOZ of the use is in QOZ Uptown Dallas Properties
Qualified Opportunity Zone Business Trade or Business Substantially all (70%) tangible property owned or leased is QOZ Business Property X At least 50% of the income is derived from Paulick Report the active conduct in the QO Zone A “substantial portion” of intangible property used in the active conduct of the business is used in the QO Zone
TP w/ eligible capital Summary gains QO Fund QOZ Business QOZ Stock/Pshp. Interest Property of QOZ Business Satisfies 90% Assets Self-Certifies as a QOF Test (Form 8996)
X X Case Study: Putting it all Together Paramount Pictures Charles/Burrows/Charles Productions Option 1 Option 2 • • Equity investment in hot tub facility business Equity investment in pub business • • Hot tub facility would be newly constructed Building housing pub would be rehabilitated • • Land for facility purchased on 1/1/18 Land and building acquired by business on 12/31/17 • • Purchase price for land: $100K Purchase price for building: $300K • • Adjusted basis in facility upon completion: $1M Adjusted basis for building upon completion: $1M • • Business located entirely in QOZ Business located entirely in QOZ
X X Case Study: Putting it all Together TVShirts NBC Universal Paramount Pictures Option 4 Option 3 • Loan to the Human Fund, a 501(c)(3) non-profit • Direct investment in motel property • Non-profit headquarters would be rehabilitated • Existing (historic) building would be rehabilitated • Land and building acquired by non-profit on 9/1/18 • Land and building to be acquired by O-Fund • Purchase price for building: $500K • Purchase price for building: $500K • Adjusted basis for building upon completion: $1M • Adjusted basis for building upon completion: $900K • Business located entirely in QOZ • Business located entirely in QOZ
Vermont’s Oppor Opportunity Zones tunity Zones
Kno Know w Your our Zo Zone ne Newp wport St. t. J/ J/ Lyndonville ville
Case Study: Location, Location, Location The Pizza Man Robert Magina • • The Pizza Man Restaurant Miss Lyndonville Diner • • 663 Broad Street, Lyndonville, VT 686 Broad Street, Lyndonville, VT • • In NMTC Census Tract In NMTC Census Tract
Pizza? Pi zza? Pa Panc ncak akes es?
Case Study: Location, Location, Location O.Z. Not O.Z. The Pizza Man Miss Lyndonville Diner
QUESTIONS? Shannon Lenzini Downs Rachlin Martin PLLC slenzini@drm.com
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