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To qualify for the Opportunity Zone tax benefits, you must invest directly into a Qualified Opportunity Fund (QOF) and can not invest directly into a qualified business or property. The Opportunity Zone program set up a special investment vehicle called a Qualified Opportunity Fund and requires all investments to go through the QOF. You can set up your own QOF, raise money for your own QOF or invest into someone else’s QOF. Right now there are billion dollar funds that have been set up to offer investments to investors.

Anyone can set up a fund. There is no approval or qualification restriction other than the fund must be organized as a Partnership or Corporation, for the purpose of investing in a Qualified Opportunity Zone Property in a Opportunity Zone, must self-certify and elect to be treated as a Qualified Opportunity Fund with the IRS. Setting up a fund is easy, making sure you use the right structure and comply with corporate, securities and tax legislation is the difficult part that is best done through a professional services company.

There’re a couple of issues here. First, the Opportunity Zone program is restricted to the investment of capital gains. By definition, you first need to sell a capital asset, like a stock, business or property, and then reinvest the capital gain into a Qualified Opportunity Fund. Using savings or other income will not qualify for the tax benefit (although you can use mixed funds). The second issue is that you must invest through a special investment vehicle called a Qualified Opportunity Fund. You can not invest directly into a qualified investment. You must invest directly into the QOF and the QOF can then reinvest into a qualified investment. Now, just to complicate things a little, your QOF can use the underlying qualifying asset to attract debt financing. 

One of the provisions of the Opportunity Zone program is that a Qualified Opportunity Fund (QOF) must purchase a property after 2017 and the purchase must be from an unrelated party. The unrelated party rule threshold is et at 20%. But for the unrelated party rule, you could sell your property to your own fund. The unrelated party rule says you can not do so unless you own no more than 20% of either the property or the fund. There are ways for you to still participate in the Opportunity Zone benefits, but they are limited or require additional deal structuring. 

1

The Opportunity Zone Program

Here’s a list with links to the Opportunity Zone legislation and regulations.

Tax Cuts and Jobs Act 2017  – I.R.C. 1400-Z

 

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Duis laoreet, lacus ut blandit porta, ex nibh venenatis dolor, id sollicitudin nulla elit sed quam. Ut ac luctus enim. Integer malesuada, augue nec sagittis semper, elit velit porttitor est, et interdum dolor diam sit amet ligula. Aliquam sed fringilla leo. Sed ante metus, consectetur vitae magna vulputate, dapibus venenatis justo.

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