Are you thinking about investing in our Opportunity Zone Fund but still have some questions? Look no further – Urban Catalyst is always here to guide you!
Our Founder, Erik Hayden, recently sat down with CPA Nick Gibbons to discuss the 25 Most Asked Opportunity Zone Tax Questions. Nick is a Partner at Armanino, and with his 17+ years of experience, he is a great resource for all tax-related questions.
In this Q+A, Nick went into great detail about the origins of the Opportunity Zone Program and the tax benefits that it offers to investors. Be sure to watch the full video to find answers to the following questions:
- 0:54- The Opportunity Zone Program is new. Can you describe when it was finalized?
- 3:45- Can you describe what a capital gain is vs ordinary income?
- 3:45- Why did the government choose capital gains for the Opportunity Zone Program?
- 7:00- Do I have to invest all of my capital gains into one fund?
- 8:39- What are the most common ways that people have a capital gains event? (Sale of stock, sale of real estate, and sale of a business)
- 12:46- I’ve heard about the three main tax benefits associated with the program - can you discuss those main benefits?
- 16:49-What is the biggest tax benefit associated with investing into the Opportunity Zone Program?
- 18:49- Does the Program also work for short term capital gains?
- 20:58- Why is the Opportunity Zone Program so popular with investors who have a capital gains event from a sale of stock?
- 23:57- As a tax expert, what would you say is the main advantage of a Fund structured as an LLC vs a REIT?
- 26:09- Urban Catalyst being structured as an LLC allows our investors to take advantage of three major programs:
- 28:13- Can you talk about depreciation and depreciation recapture in the context of an Opportunity Zone Fund?
- 31:23- Is there no depreciation recapture for the Opportunity Zone Program? Do these passive losses convert to active losses and can offset ordinary income?
- 32:46- A very important part of the opportunities on strategy has to do with refinance distributions. Are those refinance distributions taxable? If not, why not? And how does this work?
- 35:46- A lot of our investors have other investments, of course, and they’re getting multiple K-1s per year.
- 38:19- What are some of the recommendations that you are providing to your clients who have a stock gain?
- 39:43- A lot of our investors from the first fund, their capital gains event was from a sale of stock; many of them come from working for their company stock options; can you describe the difference in ownership stock?
- 43:12- As we know, the IRS set the program up so that you only get that third key benefit after you’ve held your investment for 10 full years. Do we know exactly what the IRS’ reasoning was on having that specific 10-year date?
- 45:48- Does California conform with the national program and how does that affect our investors who live in-state vs out of state?
- 48:47- It sounds like this program has some amazing tax benefits associated with it; when you recommend the Opportunity Zone Program to your clients, what are the most important things that you look for?
- 49:43- What tax forms do investors need to submit to let the federal government, the state government know that they’ve invested in a Qualified Opportunity Fund?
- 52:19- Why did you decide to recommend us vs other OZ Funds?
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Important Disclosures
The contents of this communication: (i) do not constitute an offer of securities or a solicitation of an offer to buy securities, (ii) offers can be made only by the confidential Private Placement Memorandum (the “PPM”) which is available upon request, (iii) do not and cannot replace the PPM and is qualified in its entirety by the PPM, and (iv) may not be relied upon in making an investment decision related to any investment offering by an issuer, or any affiliate, or partner thereof ("Issuer").
All potential investors must read the PPM and no person may invest without acknowledging receipt and complete review of the PPM.
With respect to any performance levels outlined herein, these do not constitute a promise of performance, nor is there any assurance that the investment objectives of any program will be attained. All investments carry the risk of loss of some or all of the principal invested. Assumptions are more fully outlined in the Offering Documents/ PPM for the respective offering. Consult the PPM for investment conditions, risk factors, minimum requirements, fees and expenses and other pertinent information with respect to any investment.
These investment opportunities have not been registered under the Securities Act of 1933 and are being offered pursuant to an exemption therefrom and from applicable state securities laws. All offerings are intended only for accredited investors unless otherwise specified.
Past performance are no guarantee of future results. All information is subject to change. You should always consult a tax professional prior to investing. Investment offerings and investment decisions may only be made on the basis of a confidential private placement memorandum issued by Issuer, or one of its partner/issuers. Issuer does not warrant the accuracy or completeness of the information contained herein. Thank you for your cooperation.
Real Estate Risk Disclosure:
- There is no guarantee that any strategy will be successful or achieve investment objectives including, among other things, profits, distributions, tax benefits, exit strategy, etc.;
- Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments;
- Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;
- Potential for foreclosure – All financed real estate investments have potential for foreclosure;
- Illiquidity – These assets are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments.
- Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;
- Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits
- Stated tax benefits – Any stated tax benefits are not guaranteed and are subject to changes in the tax code. Speak to your tax professional prior to investing.
Opportunity Zone Disclosures
- Investing in opportunity zones is speculative. Opportunity zones are newly formed entities with no operating history. There is no assurance of investment return, property appreciation, or profits. The ability to resell the fund’s underlying investment properties or businesses is not guaranteed. Investing in opportunity zone funds may involve a higher level of risk than investing in other established real estate offerings.
- Long-term investment. Opportunity zone funds have illiquid underlying investments that may not be easy to sell and the return of capital and realization of gains, if any, from an investment will generally occur only upon the partial or complete disposition or refinancing of such investments.
- Limited secondary market for redemption. Although secondary markets may provide a liquidity option in limited circumstances, the amount you will receive typically is discounted to current valuations.
- Difficult valuation assessment. The portfolio holdings in opportunity zone funds may be difficult to value because financial markets or exchanges do not usually quote or trade the holdings. As such, market prices for most of a fund’s holdings will not be readily available.
- Capital call default consequences. Meeting capital calls to provide managers with the pledged capital is a contractual obligation of each investor. Failure to meet this requirement in a timely manner could elicit significant adverse consequences, including, without limitation, the forfeiture of your interest in the fund.
- Opportunity zone funds may use leverage in connection with certain investments or participate in investments with highly leveraged capital structures. Leverage involves a high degree of financial risk and may increase the exposure of such investments to factors such as rising interest rates, downturns in the economy or deterioration in the condition of the assets underlying such investments.
- Unregistered investment. As with other unregistered investments, the regulatory protections of the Investment Company Act of 1940 are not available with unregistered securities.
- It is possible, due to tax, regulatory, or investment decisions, that a fund, or its investors, are unable realize any tax benefits. You should evaluate the merits of the underlying investment and not solely invest in an opportunity zone fund for any potential tax advantage.
The above material cannot be altered, revised, and/or modified without the express written consent of Urban Catalyst.
