It’s Not Too Late for a QOZ Fund

Did you sell a highly-appreciated asset in the latter half of this year? Or perhaps you had a 1031 exchange that went sideways? If so, a QOZ fund investment may provide some attractive tax advantages. However, unless Congress amends the QOZ tax provisions under Subchapter Z of the Internal Revenue Code, certain benefits may no longer be available after this year.

Here are the three basic tax benefits provided by QOZ fund investments:

• Defer paying capital gains tax on your recent sale until December 31, 2026;
• Receive a 10% discount on your taxes in the form of a partial step-up in basis; and
• Avoid taxation on any gain attributable to the QOZ fund itself (if you hold your QOZ fund investment for a minimum of 10 years).

To receive the 10% tax reduction, the QOZ fund investment must have been held for at least five years. The effective deadline for this benefit is December 31, 2021.

While these tax perks may not compare to those provided by a 1031 exchange, for an individual who blew an exchange or has a significant capital-gain recognition from an asset other than real estate, a QOZ fund can be a good alternative. Indeed, there are two advantages of QOZ investments not offered through a 1031 exchange.

First, unlike a 1031 exchange, you only need to reinvest your gains (a 1031 exchange requires you to invest the entire value of your relinquished property). Second, QOZs are not limited to proceeds of the sale of real estate. This means that you can reinvest your net proceeds from the sale of a stock or a business. The typical minimum investment for a QOZ fund is $500k.

QOZ funds invest in real estate projects (new development or rehabilitation) located in designated Qualified Opportunity Zones around the country. To qualify as QOZs, these neighborhoods met specific standards based on 2010 census data, including:

• Poverty rate must be at least 20%
• Median household does not exceed 80% of the metropolitan area median household income

There are currently over 8,700 QOZs, and many areas designated as QOZs already have experienced meaningful investment.

Unlike traditional real estate funds, most QOZ funds begin with a significant period—sometimes years—without generating distributable income. Typically, overall investor returns are modeled to derive from appreciation more than interim cash flow. While the overall risk profile of development programs is typically higher than a conventional buy-and-hold real estate fund, the potential returns from development are also higher.

If you are interested in learning how a QOZ fund may benefit you, please contact 1031 Capital Solutions today at 1-800-445-5908.

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This is for informational purposes only, and because investor situations and objectives vary this information is not intended to indicate suitability for any individual investor. This is neither an offer to sell nor a solicitation of an offer to buy any securities. An offering is made only by a private placement memorandum.

The information contained in this material is not representative of any specific property or opportunity.

The terms outlined herein remain subject to change as needed based upon regulatory guidance issued under Subchapter Z of the Internal Revenue Code. Such guidance may be issued in the near future. This material is not to be interpreted as tax or legal advice. Investors should consult with their own tax and legal advisors for guidance regarding their particular situation.

There are various risks inherent in real estate investing, including changes in national and local economic conditions, changes in the investment climate for real estate investments, changes in the demand for or supply of competing properties, changes in local market conditions and neighborhood characteristics, the availability and cost of mortgage funds, the obligation to meet fixed and maturing obligations (if any), changes in real estate tax rates and other operating expenses, changes in governmental rules and fiscal policies, and changes in zoning and other land use regulations, environmental controls, among other factors.

An investment in a qualified opportunity zone (“QOZ”) fund (a “QOF”) is subject to various risks, including but not limited to:

• There is no public market for QOF interests and such interests are not registered with the sec or the securities commissions of any state or country;
• QOF interests are not liquid;
• QOF offerings are made on a “best-efforts” basis with no minimum raise or minimum escrow requirements;
• The QOZ rules, which remain subject to ongoing IRS and treasury review and guidance and, as such, may be changed in a manner which requires modification of an offering, the structure and the related underlying documentation thereof, including, but not limited to, a partnership agreement and any investment-level joint venture agreements;
• Material tax risks exists, including treatment of QOF interests for purposes of the QOZ rules;
• Limited partners have limited control over a QOF;
• A QOF may lose its qualification as a QOF;
• Limited partners having limited voting rights with respect to the management or operations of a QOF or in connection with the sale of investments;
• A general partner’s duties to limited partners are limited;
• There are various conflicts of interest among sponsors, QOFs, general partners, development partners and their affiliates;
• Reliance on development partners to develop, construct and manage (if applicable) QOF investments includes risk; and
• Limited partners in a QOF may not realize a return on their investment for years, if at all.

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This article 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 1031 exchange replacement properties may not be suitable for all investors and may involve significant risks such as illiquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties, financing risks, potential adverse tax consequences, general economic risks, development risks, long hold periods, and potential loss of the entire investment principal.

Neither Richard D. Gann nor CIS or CAM 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.

Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services offered through Concorde Asset Management, LLC (CAM), an SEC-registered investment adviser. 1031 Capital Solutions is independent of CIS and CAM.