Utilizing Opportunity Zones in Real Estate

Real Estate Brokers, I'll let you in on a secret. You're marketing Opportunity Zone listings wrong, and it's costing you time and money. Here's how to fix it and close more deals: As a CRE broker, you might be making costly mistakes with your Opportunity Zone (OZ) listings. I've seen it happen too often, and it's time we address it. Let's dive into your guide for getting it right and boosting your deal flow: 1. The Two Common Pitfalls: ▪ Not mentioning OZ eligibility when it applies. You're missing out on motivated buyers. ▪ Marketing non-viable OZ properties. This wastes time and damages credibility. 2. The Essential First Step: ▪ Always verify OZ status. With 8,000+ designated census tracts nationwide, you might be surprised. I check every listing, no exceptions. Just check one of the many interactive OZ maps (the Novogradac & Company LLP tool is a good one) 3. Easy Wins: ▪ Vacant land or teardowns in OZs? Market them specifically as OZ sites. These are gold for investors looking to maximize tax benefits. 4. The "Original Use" Opportunity: For existing OZ buildings, ask: ▪ Vacant for 3+ years? ▪ New construction (pre-TCO)? ▪ Brownfield site? If yes to any, you've got a strong OZ play. Market it as such. 5. The Tricky Part - In-Service Buildings: This is where careful analysis is crucial. Remember the substantial improvement test. For an existng/occupied building, a new buyer MUST invest more than the building's depreciable basis within 30 months. Example: ▪ Property value: $2M ▪ Land value: $400K ▪ Depreciable basis: $1.6M (purchase price MINUS land value) ▪ Required additional investment: $1.601M+ What counts as improvements? Any capitalized costs: ▪ Brokerage fees ▪ Attorney fees ▪ Carry costs until stabilization ▪ Hard costs of physical improvements This strategy works well for properties with excess land. But if there's no clear path to substantial improvement, don't market it as an OZ project. 6. Key Benefits to Highlight: ▪ Capital gains deferral until 2026 ▪ No capital gains tax on QOF appreciation after a 10-year hold 7. The Bigger Picture: Remember, OZ investments should enhance the community. The substantial improvement requirement ensures the property contributes to local economic development. It's not just about tax benefits; it's about making a real impact. By mastering OZ nuances, you'll: ▪ Attract savvy buyers ▪ Close deals faster ▪ Increase your market value ▪ Drive community impact OZ deals can be complex, but they're worth it. Use this guide to market effectively. Your expertise can make or break these opportunities. Want to dive deeper into OZ strategies? Let's connect. I'm always happy to discuss how we can maximize OZ benefits and contribute to meaningful community development. #CommercialRealEstate #OpportunityZones

Fascinating new economic research shows Opportunity Zones have created far more housing than previously known (313,000 units) and at far cheaper subsidy cost than most people realize ($26k/unit) -- making OZs perhaps the most efficient, effective housing supply creation program in existence. I suggest we double down on what actually works, eh? The groundbreaking research was published yesterday by the Economic Innovation Group. The authors concluded that OZ are "dominating other housing tax incentives" in terms of production and efficiency. OZs provide capital gains tax benefits to incentivize long-term investments (10+ years) in designated lower-income neighborhoods. Among their findings: 1) Prior to the legislation, the neighborhoods that became Opportunity Zones had been "left behind" -- economically challenged areas seeing no housing supply growth for a decade. Since then, we've completed 313,000 new housing units across OZs nationally, with more still under construction. See chart below for an absolutely wild visual of this impact. 2) Opportunity Zone neighborhoods now outpace the national average in creating new housing supply. This is another crazy stat because "these are genuinely distressed communities," as one of the authors, Adam Ozimek, noted. He added that some reporting suggesting otherwise has centered around an "unrepresentative handful of outlier anecdotes." 3) OZs account for 48% of new housing in designated tracts, 16% across all low-income communities, and 4% of all new housing nationally. One of the report's authors, John Lettieri, wrote that "these are astonishingly large results" impacting not only urban areas, but also suburban and rural and in between. 4) At a subsidy cost of just $26k/unit, co-author Benjamin Glasner noted that OZs are "vastly cheaper than traditional housing subsidies" for taxpayers. "The results underscore that flexible, market-driven tax incentives can mobilize private capital, unlocking significant investment potential in distressed communities." 5) Why are Opportunity Zones so effective and efficient? Unlike other programs, OZ projects have a "by-right" qualification with no bureaucratic pre-approvals. It's a federal tax benefit that doesn't require approval from cities to tap into (other than standard permits etc. to build) or special connections to access. It turns out simpler is better and faster. We should incentivize the creation of things we need more of as society. We need more housing. So let's lean heavily on programs that actually work. And OZs clearly work well. Encouraging to see that HUD Secretary Scott Turner -- along with policymakers on both sides of the aisle -- want to extend and expand Opportunity Zones. Perhaps even to include for-sale homes in addition to rental apartments. Bottom line: Opportunity Zones, in Glasner's words, "may be the most effective pro-housing supply policy in America today." Let's double down on what actually works. #housing #apartments

I've spoken with a handful of Qualified Opportunity Fund sponsors and investors lately. Some quick notes as I step up my coverage on OZ 2.0... Firstly, everyone says the same thing: The tax benefits are the icing on the cake. The cake is plain 'ole real estate investing. Some institutional real estate investors laughed when I asked them about OZs. This was not serious to them. But... this is very serious. Novoco has tracked (see image) north of $42 billion in equity raised by Qualified Opportunity Funds (QOFs) since program inception since 2019. Though the total raised is likely much higher. OZs seemed like an experiment when they were first introduced in TCJA (2017), but OBBBA makes the program permanent. Background... mechanics & incentives • Deferral: reinvest capital gains into a qualified opportunity fund (QOF) within 180 days to defer federal tax on the original gain • Step-up: deferral ends upon sale or the inclusion date (now a rolling 5-year window for investments made after 2026). Holding for 5 years = 10% basis step-up (30% for rural QOFs) • Tax-free exit: holding for 10+ years eliminates all capital gains tax on the QOF appreciation and wipes out depreciation recapture on the asset itself upon exit 🤯 • Bonus depreciation: OBBBA permanently reinstated 100% bonus depreciation Diligence: • Redesignation risk: states must redesignate zones starting July 1, 2026. Check if project census tract survives or is grandfathered • Rural (QROF): 30% step-up and a reduced 50% substantial improvement threshold (vs. 100% urban). However, rent growth tends to be lower 🫤 • Liquidity planning: the deferred tax bill is not forgiven. Ensure liquidity when the 5-year rolling window closes (or losses are available to offset... check state laws conform). Check for phantom income too. Since capital is locked, income allocations might not have corresponding cash flow • Recapture trap: the 10-year hold usually non-negotiable to eliminate depreciation recapture; early exits trigger recapture usually at 25% (§ 1250 real property), though possible higher for § 1245 personal property, and assuming cost segregation study... the step-up after 10 years eliminates both • Local partners: critical for execution. Locals navigate entitlements, secure sales tax and property tax incentives, and identify viable low-income housing sites that could qualify for tax credits Lastly, some folks position QOFs as a way to de-risk single-stock concentration (sell, reinvest, get diversified?), but it depends on the fund and I generally view it as a complementary strategy in the de-risking toolkit for investors who already wanted real estate exposure. Just getting started on this... in fact, I'm meeting with a QOF sponsor this morning...

I spoke to an operator last week (who owns 9-figures of real estate) about his focus in 2025. Here’s what we talked about: 1) Historic Tax Credits. 2) Opportunity Zones. Him and I have been diving deep into both opportunities. Here’s some takeaways from our conversation: (& my research) 1) Historic Tax Credits (HTCs) - The operator is selling an asset that could use Historic Tax Credits. - HTCs are meant to encourage developers to keep historical sites. - HTCs provide up to a 20% federal tax credit. - (Even some local municipalities provide their own HTCs) - Instead of reducing your taxable income. - It reduces your actual tax liability. For example, if you invest $10,000,000 into the qualified rehabilitation of a certified historic property, the Federal Historic Tax Credit (HTC) program can provide a 20% tax credit - meaning you could reduce your federal tax liability by $2,000,000. It’s an incredible opportunity for the right investor. BONUS: These credits can be based onto LP’s within a real estate investment offering. 2) Opportunity Zones. - The operator and I spoke about what to expect with the One Big Beautiful Bill. - And more specifically, how opportunity zones are affected. - Here’s what to know: - Opportunity Zones are now permanent, and won’t expire in 2026. - Rolling 5-year deferral gives investors more time and flexibility to defer taxes. - Rural OZ projects now qualify for up to 30% capital gains tax reduction. P.S. What’s your experience with HTCs & Opportunity Zones?

Are you missing out on the biggest  real estate opportunity? Have you heard about Opportunity Zones? Created by the Tax Cuts and Jobs Act of 2017,  they're transforming how we think about real  estate investment and community development. What are Opportunity Zones? These are designated areas in economically challenged  communities, offering unique investment opportunities  with significant tax benefits. Key benefits include: • Deferred capital gains tax • Step-up in basis (10% after 5 years, 15% after 7 years) • Tax-free gains on investments held for 10+ years    But it's not just about tax breaks. Investing in Opportunity Zones means: • Fueling economic growth in underserved areas • Creating jobs and revitalizing communities • Diversifying your investment portfolio    Opportunity Zones present a unique chance to align  financial goals with social impact. By investing in these areas, you're not just potentially  boosting your returns – you're contributing to  community revitalization. As with any investment, it's crucial to do your due  diligence and consider your long-term strategy. The potential for both profit and positive change  makes Opportunity Zones an exciting option  for forward-thinking investors.

You spent 20 years building your business. Selling doesn't = 50% to taxes... TRUMP TAX BILL ✅ Qualified Opportunity Zones The new bill extends the QOZ deferral window. Now you can defer eligible capital gains through 2030 (it was previously 2026). Plus, there’s an extra 10% step-up if you hold the QOZ investment for at least 6 years, and a full 15% step-up if you hold for 10 years. 👉 How does this help owners selling a business? You can roll capital gains from your sale into a Qualified Opportunity Fund (QOF) within 180 days of closing. The deferred gains won’t be taxed until 2030, or until you sell the QOF. If you hold the QOF for 10+ years, you can permanently exclude any appreciation on the QOF investment itself. ✅ Bonus Depreciation in the New Bill: Under the new bill’s 100% bonus depreciation rules: You can bonus depreciate “qualified improvement property” (QIP) — think renovations to the interior of commercial buildings. Plus, cost segregation can break out short-life components of real estate that qualify for bonus depreciation. So instead of waiting 27.5 or 39 years to depreciate a building, you carve out parts of it into 5-, 7-, or 15-year property and expense them all immediately. ✅ How it offsets active income Normally, rental real estate losses are “passive” — they can only offset other passive income...BUT If you or your spouse qualify as a Real Estate Professional (REP) (material participation + >750 hours/year + >50% of work in real estate) — then real estate losses are non-passive and can offset active income (like salary, business profits, gain from an asset sale treated as active). So, if you sell your business for a big gain and you or your spouse qualify as a REP: You buy a large multifamily or commercial property. Do a cost seg study to carve out 30–40% of the purchase price as short-life property. Bonus depreciate that portion in year one. That deduction directly reduces your taxable active income from the sale. ✅ Example Sell your business — $5M gain, taxed as active income due to asset sale structure. Buy a $3M apartment complex. Cost seg shows 30% ($900K) in bonus-eligible components. Qualify as a REP → that $900K deduction reduces active taxable gain by $900K. You just saved ~$350K in tax at the top bracket. Most owners pour everything into growing their company, but when it’s finally time to sell, they realize too late that selling well takes just as much planning as building. The truth is that payday can change your life but only if you plan ahead to protect it. Here’s what I help owners do: ✅ Get clear on what a sale means for their money and lifestyle ✅ Keep more of what they’ve earned (taxes and structure) ✅ Turn a one-time check into long-term financial freedom If you’re even thinking about selling, this year or five years from now, the best time to plan was yesterday. The next best time is today. Follow Luke Turner, CFP®, CEPA® for financial freedom

Potential OZ investors wonder if it is too late to take advantage of the current Opportunity Zone program (OZ 1.0) or wait to see if Opportunity Zone 2.0 (OZ 2.0) will pass into law and invest under that regime.   Blake E. Christian, CPA/ MBT and his team at HCVT, leaders in the OZ CPA/consulting space, identified even more reasons for prompt OZ investment than I’ve been passing on to my clients. In summary they are: 𝐒𝐭𝐚𝐫𝐭 𝐭𝐡𝐞 𝐓𝐞𝐧 𝐘𝐞𝐚𝐫 𝐂𝐥𝐨𝐜𝐤 The 10-year clock starts when qualified capital gains are placed in a qualified opportunity fund (QOF). There is no required holding period for investments thereunder. This means, for example, that if it takes three years to acquire a qualifying investment (which can be available under the OZ rules) they it need be held only seven years.   𝐁𝐞 𝐏𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐞𝐝 𝐟𝐨𝐫 𝐃𝐞𝐟𝐟𝐞𝐫𝐚𝐥 The current deferral period for recognizing and paying tax on the original capital gain is deferred to December 31, 2026 (with the tax payable April 15, 2027) this remains effectively an interest-free loan – very valuable for short or long-term capital gains of any significant size. Further it seems very likely that OZ 2.0 will extend this deferral period.   𝐓𝐚𝐤𝐞 𝐂𝐨𝐧𝐭𝐫𝐨𝐥 𝐚𝐧𝐝 𝐈𝐧𝐯𝐞𝐬𝐭 𝐒𝐨𝐨𝐧𝐞𝐫 A captive QOF, one that is wholly owned and managed by the taxpayer (or a family office), offers full control over the investment process, timeline, and investment selection. Rather than waiting for OZ 2.0, investors can promptly deploy capital into investments that can begin to appreciate, which can result in a stronger compounding effect. Delaying investment until OZ 2.0 is legislated risks missing out on current opportunities and sooner deployment of capital.   𝐂𝐞𝐫𝐭𝐚𝐢𝐧𝐭𝐲 𝐨𝐟 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐢𝐧 𝐭𝐡𝐞 𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐎𝐙 𝐓𝐫𝐚𝐜𝐭𝐬 The currently designated OZ tracts are known and lend themselves to effective investment analysis. It is unknown the tracts that may be applicable to OZ 2.0 but it is certain that there will be significant differences than currently exist.   𝐀𝐛𝐢𝐥𝐢𝐭𝐲 𝐭𝐨 𝐃𝐞𝐟𝐞𝐫 𝐀𝐝𝐝𝐢𝐭𝐢𝐨𝐧𝐚𝐥 𝐅𝐮𝐭𝐮𝐫𝐞 𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐆𝐚𝐢𝐧𝐬 Many taxpayers generate new capital gains throughout the year. Once the taxpayer has established iys captive QOF there is significant flexibility to reinvest these expected and unexpected capital gains. 𝐑𝐞-𝐓𝐫𝐢𝐠𝐠𝐞𝐫 𝐭𝐡𝐞 𝐆𝐚𝐢𝐧 𝐈𝐟 𝐍𝐞𝐰 𝐎𝐙 𝐑𝐮𝐥𝐞𝐬 𝐇𝐚𝐯𝐞 𝐀𝐝𝐯𝐚𝐧𝐭𝐚𝐠𝐞𝐬 If OZ 2.0 is more attractive than OZ 1.0 taxpayers may have the ability to “re-trigger” their original capital gain through an “inclusion event”, a distribution or a “decertification” of the QOF and reinvest into a newly structured QOF under OZ 2.0. But failing to capitalize a QOF now under OZ 1.0 will eliminate the chance to take advantage of OZ 2.0. Read Blake's white paper for more details.

#OpportunityZones made the cut in Chairman Jason Smith's just released text of the One Big, Beautiful Bill slated for mark-up this week. A few highlights and stay tuned for the resulting House bill and more updates on the Senate side: 1. New Round of OZ Designations - Authorizes a second round of Opportunity Zone (OZ) designations, beginning January 1, 2027, and ending December 31, 2033. - Up to 25% of low-income communities in each state may be designated as OZs. - At least one-third of the designations (or the percentage of the U.S. population living in rural areas, whichever is greater) must be in rural areas, as defined under the Consolidated Farm and Rural Development Act. 2. Extended Deferral Period For investments made after December 31, 2026, and before January 1, 2034, the deferred capital gains would now be recognized on December 31, 2033, rather than 2026. 3. Basis Step-Ups for New Investments For post-2026 OZ investments: Investors holding for 5+ years get a 10% basis step-up on deferred gains. Investments in Qualified Rural Opportunity Funds (QROFs) receive a 30% basis step-up, providing an enhanced incentive for rural OZ investing. 4. Expanded Eligibility for Ordinary Income Allows up to $10,000 of ordinary income to qualify for deferral under OZ rules, even if it is not capital gain, subject to certain limitations. 5. Support for Rural Improvements and Data Centers Improves treatment of existing buildings in rural OZs: only 50% of the adjusted basis must be improved, easing the substantial improvement test for such properties, particularly helpful for infrastructure like data centers. 6. New Transparency and Reporting Requirements Mandates annual public reports by the Treasury, including: - Number of OZ funds and total assets. - Location and type of OZ investments. - Employment impact and number of residential units added. - Data specific to Qualified Rural Opportunity Funds. - Establishes strict reporting duties for QOFs and OZ businesses, including penalties for noncompliance #OpportunityZones #OpportunityFund #rural #tax #realestate #familyoffice #RIA

Opportunity Zones are Cool - But Commonly Misunderstood. Here are 4 Common Misconceptions I Keep Seeing: 1️⃣ Investment Vehicle Matters: It's a common belief that buying property directly within a QOZ leads to tax deferral benefits. The reality? The tax deferral is primarily achieved through contributions made into a Qualified Opportunity Fund (QOF), not just by purchasing assets in a QOZ. To tap into these tax deferrals, capital gains must be channeled into a QOF before those funds are then deployed into qualifying assets, emphasizing the importance of the investment medium. 2️⃣ Asset Criteria - Original Use or Substantial Improvement: For a QOF's assets to be compliant and eligible for accepting contributions that result in gain deferrals, these assets must either be newly created (original use) or substantially improved. Substantial improvement is quantified as investments in renovations exceeding the initial purchase cost of the unimproved asset by at least $1. This rule ensures that the benefits are tied to genuine development or enhancement of the properties within QOZs. 3️⃣ Related Party Ownership Cap and Gain Deferral: A lesser-known rule is that selling an asset to a QOF and then deferring the gain by reinvesting the gain into the same QOF can be tricky. If such a transaction results in owning (either by capital or by voting %) more than 20% of the QOF, the deferral of gain is not permitted. However, if the post-transaction ownership is less than 20% (like 10%), deferring the gain remains a possibility, provided all other criteria are met. 4️⃣ Basis and Taxability of Distributions: Here’s a critical nuance - an investment in a QOF that results in gain deferral doesn't equate to a tax basis in the fund equal to the amount contributed. This distinction can significantly affect the taxability of distributions from the fund. With no initial basis, substantial distributions from the QOF might be more likely taxable compared to distributions from a standard partnership operation - especially if another party is guaranteeing the mortgage debt. 🗝Remember, fixing mistakes in these investments after the fact isn’t easy. So, planning ahead is key. A good CPA can be a key partner, helping you mix all the ingredients right for a successful investment. If diving into all these details sounds overwhelming, don’t sweat it! That's what CPAs are here for. I'm always up for a chat if you need help making sense of it all. Investment strategies can be fun when you've got the right help. If you like what you read, go ahead and share it! #QualifiedOpportunityZones #RealEstateInvestment #TaxStrategy #CPAExpertise #syndication #wealthbuilding