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Opportunity Zones IRS Tax Shelter

Old 01-11-2019, 04:39 PM
  #21  
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Originally Posted by OldPete View Post
Sub'd. I know nothing about this -- I'm about to do a 1031 and am interested. Sub'd
cliffs:
buy in special OZs, get your cap gains taxes deferred for Ten years.
Caveat: must use taxable cap Gains money for yuor buy in.

Goal: get people to pull money out of the market and invest in real estate instead.

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Old 01-11-2019, 04:45 PM
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Originally Posted by Double tyme View Post

cliffs:
buy in special OZs, get your cap gains taxes deferred for Ten years.
Caveat: must use taxable cap Gains money for yuor buy in.

Goal: get people to pull money out of the market and invest in real estate instead.


Thanks for the head's up. I thought you could just pay cash for the property and any gains tax was gone after 10 years if you made any "improvements". Wasn't aware that you had to use capital gains for the buy in.
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Old 01-11-2019, 05:08 PM
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Originally Posted by Shag View Post
Thanks for the head's up. I thought you could just pay cash for the property and any gains tax was gone after 10 years if you made any "improvements". Wasn't aware that you had to use capital gains for the buy in.
couple buddies with way deeper pockets paid a CPA to walk them through it. I got the cliffs notes.

Bottom line, if the zones don't work for you it's irrelevant. In my area it's mostly shit-ville areas they're forcing industrial building in and want folks To buy into. That, and a strip on upper meeting street that some local lobbyist surely made happen.
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Old 01-11-2019, 05:15 PM
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One of my suppliers is in an enterprise zone, huge building and he does a ton of business. The 3.3% sales tax vs NJ regular 7% is a huge savings for me and makes him much more attractive to customers. I can see why cap rates for those areas would be higher.
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Old 01-11-2019, 05:55 PM
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Originally Posted by Double tyme View Post

cliffs:
buy in special OZs, get your cap gains taxes deferred for Ten years.
Caveat: must use taxable cap Gains money for yuor buy in.

Goal: get people to pull money out of the market and invest in real estate instead.

Your capital gains deferred until 12/31/26 at the latest. When you recognize them, the basis in your QOF is stepped up by the recognition. If you hold the QOF for 10 years you elect to step up that to FMV.

You donít have to use all cap gains as your buy in. Just makes it easier. Doesnít have to be real estate either.
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Old 01-11-2019, 06:41 PM
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Originally Posted by Trollin4Tuna View Post

Your capital gains deferred until 12/31/26 at the latest. When you recognize them, the basis in your QOF is stepped up by the recognition. If you hold the QOF for 10 years you elect to step up that to FMV.

You donít have to use all cap gains as your buy in. Just makes it easier. Doesnít have to be real estate either.
When my mom and pop passed we took a pretty large step up. But, with the opportunity zones it may be well north of what we stepped it up to. If we sell it we pay the capital gains but it makes it more attractive to prospective buyers.
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Old 01-11-2019, 06:42 PM
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Originally Posted by Trollin4Tuna View Post

Your capital gains deferred until 12/31/26 at the latest. When you recognize them, the basis in your QOF is stepped up by the recognition. If you hold the QOF for 10 years you elect to step up that to FMV.

You donít have to use all cap gains as your buy in. Just makes it easier. Doesnít have to be real estate either.
correct. Premise is "buy in zone x, make money on appreciation aNd rental income, kick the tax liability down the road".

I spent some time analyzing it, based on the zones near me, the buy in needed to be 3-5 million to make sense. Too rich for my blood.
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Old 01-12-2019, 06:14 AM
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Not sure if this if of interest. Entrex is ny buddies company.
https://www.prweb.com/releases/entre...eb16024089.htm
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Old 01-12-2019, 08:59 AM
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It doesn't amount to anything but some commercial property my family has owned for decades is in an opportunity zone. Interesting.
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Old 01-12-2019, 06:35 PM
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Why would you do this when you can buy anywhere with 1031 and no ten year limit?
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Old 01-12-2019, 08:27 PM
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Originally Posted by OldPete View Post
Why would you do this when you can buy anywhere with 1031 and no ten year limit?
You can't 1031 capital gains from stock sales into real estate like you can in an OZ. Also, there are time and property (identify 3 properties) constraints with 1031 transfers that don't exist with OZ purchases.

It's really yet to be seen what impact the OZ's will have on real estate inside these areas. There's no downside, but the upside is hard to measure until enough market data (closed sales) becomes available to determine if they will have a significant impact on value. At the very least they should increase marketability of properties in these areas.
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Old 01-13-2019, 02:37 AM
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Originally Posted by OldPete View Post
Why would you do this when you can buy anywhere with 1031 and no ten year limit?
And to add to the above, with 1031 you need to equal or exceed the fmv of the sale property with replacement for full deferral. With zones, the gain itself is reinvested.
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Old 01-13-2019, 04:23 AM
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Excellent replies. Very helpful... some more questions:

Originally Posted by Marlin308 View Post
You can't 1031 capital gains from stock sales into real estate like you can in an OZ. Also, there are time and property (identify 3 properties) constraints with 1031 transfers that don't exist with OZ purchases.

It's really yet to be seen what impact the OZ's will have on real estate inside these areas. There's no downside, but the upside is hard to measure until enough market data (closed sales) becomes available to determine if they will have a significant impact on value. At the very least they should increase marketability of properties in these areas.
Understood on using cap gain from non-real estate. In my case that doesn't come into play.
1. What about depreciation recapture? With 1031, I avoid both cap gain and depreciation recap. Answered... only cap gain.
2. The identification period is interesting. So... let's say you're slated to do a 1031 and for some awful reason things fall apart -- can you then move on and look for something in an OZ?
3. I'm not exactly clear on the 10 year thing. Say you sell something for $10MM -- and all of that $10MM would have been taxed due to cap gain and depreciation recapture. You then buy something for $10MM in an OZ, and after to years it is worth $12MM... I assume you then owe tax on cap gain and depreciation recap on the full $12MM. Is that right
4. With a 1031, there are some pretty significant benefits to heirs upon the passing of the a parent with regard to resetting the cost basis for cap gains and recapture. I assume with the OZ deal, there's nothing? After the 10 years you're going to pay up?
5. If I have it right, the benefit of the OZ is that you're given use of the tax money for 10 years before you pay cap. gain, etc... he's a big question: what happens if the tax rate goes up? Do you pay at the old rate when you first realized the sale or do you pay it at the new higher rate?

Originally Posted by BACKTOTHESEA View Post

And to add to the above, with 1031 you need to equal or exceed the fmv of the sale property with replacement for full deferral. With zones, the gain itself is reinvested.
I do not think that is correct. If you have $10MM from a sale, and you find something for $2MM, you can buy the $2MM and then pay cap gain and depreciation recap on the $8MM.

--

Thanks for explaining all this to me. I have a pretty strong knowledge base of 1031, only because I have my QI on speed dial. LOL, This one is new to me.
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Old 01-13-2019, 04:24 AM
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Just looked it up. ONLY for cap gain, not depreciation recap.
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Old 01-13-2019, 06:39 AM
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Originally Posted by OldPete View Post
Excellent replies. Very helpful... some more questions:



Understood on using cap gain from non-real estate. In my case that doesn't come into play.
1. What about depreciation recapture? With 1031, I avoid both cap gain and depreciation recap. Answered... only cap gain.
2. The identification period is interesting. So... let's say you're slated to do a 1031 and for some awful reason things fall apart -- can you then move on and look for something in an OZ?
3. I'm not exactly clear on the 10 year thing. Say you sell something for $10MM -- and all of that $10MM would have been taxed due to cap gain and depreciation recapture. You then buy something for $10MM in an OZ, and after to years it is worth $12MM... I assume you then owe tax on cap gain and depreciation recap on the full $12MM. Is that right
4. With a 1031, there are some pretty significant benefits to heirs upon the passing of the a parent with regard to resetting the cost basis for cap gains and recapture. I assume with the OZ deal, there's nothing? After the 10 years you're going to pay up?
5. If I have it right, the benefit of the OZ is that you're given use of the tax money for 10 years before you pay cap. gain, etc... he's a big question: what happens if the tax rate goes up? Do you pay at the old rate when you first realized the sale or do you pay it at the new higher rate?



I do not think that is correct. If you have $10MM from a sale, and you find something for $2MM, you can buy the $2MM and then pay cap gain and depreciation recap on the $8MM.

--

Thanks for explaining all this to me. I have a pretty strong knowledge base of 1031, only because I have my QI on speed dial. LOL, This one is new to me.
I think you are misunderstanding what I said in part. Yes, only capital gain for OZ. That still does not change the fact that FULL deferral under 1031 still,requires the replacement FMV to = or exceed the FMV of the exchanged property.
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Old 01-13-2019, 12:15 PM
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Originally Posted by BACKTOTHESEA View Post

I think you are misunderstanding what I said in part. Yes, only capital gain for OZ. That still does not change the fact that FULL deferral under 1031 still,requires the replacement FMV to = or exceed the FMV of the exchanged property.
I don't think we're using the same terminology for the 1031 part of your reply.

For 1031, if you have $10MM of cap gains and recap -- you can exchange into a property for $7MM and pay on $3MM, or you can buy a property for $20MM, and finance the other $10MM.
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Old 01-13-2019, 12:19 PM
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(And I'm still interested in learning more on the rest of my questions...)
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Old 01-13-2019, 12:36 PM
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Originally Posted by OldPete View Post
I don't think we're using the same terminology for the 1031 part of your reply.

For 1031, if you have $10MM of cap gains and recap -- you can exchange into a property for $7MM and pay on $3MM, or you can buy a property for $20MM, and finance the other $10MM.
you are saying the same thing. Only 7 of the 10 is deferred. The balance is triggered.
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Old 01-13-2019, 12:57 PM
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Originally Posted by BACKTOTHESEA View Post

you are saying the same thing. Only 7 of the 10 is deferred. The balance is triggered.
Yes. I got that.

Looks to me if you're doing RE to RE, there's no good reason for this... 1031 is still the king. Looks like a 10 year can-kick if you go from securities to RE. But I'd be weary as to what happens in 10 years.
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Old 01-13-2019, 01:05 PM
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Originally Posted by OldPete View Post
Yes. I got that.

Looks to me if you're doing RE to RE, there's no good reason for this... 1031 is still the king. Looks like a 10 year can-kick if you go from securities to RE. But I'd be weary as to what happens in 10 years.
I donít disagree.
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