Alright, we are almost two months past when
the big beautiful bill was pa- was signed into law,
and a huge part of this was the Opportunity Zone,
uh, the Opportunity Zone changes. So,
I know, I promise, we'll on that.
Uh, so, you think,
when we're doing tax planning, like,
when we want to save people on taxes,
when we're, when we're putting together strategies,
when you're looking at things, there's two big,
like, types of things. Tax strategies.
One is a tax deferral,
and that's, like, just, I call it just, like, kicking the tax can down
the road, which is all right. Like,
you're, you're saving some money now, but it's kind of,
it's going to come back to bite you later, kind of. But then there's
another one, where it's permanent tax savings. And this,
what we're going to talk about today is actually this,
the opportunity zone changes and the opportunity,
like, the opportunity zone investment opportunities.
There, there's actually two parts to that. There's the part where we can defer
it, and we do, which is good,
but it's not absolutely awesome and great.
And then there's the part where you can permanently save taxes,
like forever you can save taxes.
So we're going to talk about that. So this is real big. This is
not just for real estate investors. That's the other part.
Um, so many of you,
you might not have even heard of the opportunity zone investments.
So I'll give a quick. Quick summary of that, but it's not just for
real estate investors. If you are a business owner,
or if you're thinking of buying into a business or you're looking at ways,
actually, if, if you owe money on a capital gain,
like you sold something and you owe, you're going to owe some tax on
it, I would keep listening to,
just because it could give you an opportunity to get into real estate in
these areas. There's multiple different ways to do it.
And then, uh, the other one is there's multiple different ways to get into
businesses in certain areas of the United States as well,
to, to help you, one, defer your tax and potentially comply.
completely wipe out some tax.
Okay, so this is the Opportunity Zone investments.
You'll see these as QOZs,
like Qualified Opportunity Zones. You'll,
you might hear them as like Qualified Opportunity Zone funds,
because there are people that, you can raise funds,
you can pool money together to go and buy real estate or businesses in
these. So, what, what had happened?
Like, what, like, what the original opportunity was?
This was back in 2018 when the law first changed,
is you could sell something, and honestly,
you could sell anything at a capital gain,
and if you had taxed on a capital gain, remember that's when you,
when you sell. Sell something for more than you bought it for, that's a
capital gain. When you have a capital gain,
you're going to, you have to report it on your tax return.
The opportunity has been there for anybody, or if you take that,
that gain, so as an example, let's say you bought something for.
$100,000, you sell it for $200,000,
you have a $100,000 gain, and if you don't want to pay tax on
it, an opportunity would be, maybe,
maybe this is why they call them opportunity zone funds,
or opportunity zone investments. Your opportunity is where you can take $100,000,
like your gain, and you can roll that over,
you can go and put that into a fund,
that's like where someone else has pooled money, you can put it into,
real estate, like an LLC that you form and put the money in there,
and you can go buy real estate that you own,
manage, and control yourself, uhm,
or into a business. That is in one of these areas.
So a key part of this, the,
there are qualified opportunities zone,
like zones and areas where you have to invest in,
and it's like, it,
it's less than 10% if you invest in the But if you Google opportunity
zone map, you'll see a,
you'll see a government map that they've put out there. You'll see there's advertisement
companies and stuff that put maps out there too, but it's a widely available
map and it's in, usually in more rural areas.
Uh,
lower income areas and where it's where the governors of each state have identified
specific areas where they're like, Hey, I would love to spur some,
some real estate development here and business development growth here.
The governors have identified these certain areas with
the federal government and they've come together and they identified those.
That was back in 2018 is when they identified them.
So. It's, if you get money into this real estate or into,
uh, into businesses in these areas,
you don't have to pay tax on that gain.
And then remember going back to that example, you don't have to pay tax
on that $100,000 gain. And I'm gonna,
I'll word this carefully because my,
that sentence isn't finished. I started it with,
you don't have to pay tax on the $100,000 gain.
There's a follow up to that. Until.
Under this new law,
five years later. And so it's kind of weird.
You're like, wait, I'm not paying.
So I don't have to pay tax on $100,000 now?
But five years later, I have to pay tax on it.
And that's right. These opportunity zones, honestly,
they're not as great. Some people view them as completely magical and,
oh, you never have to pay tax again. On that first tax,
that first $100,000, that you're deferring the gain on,
you do have to pay tax on it after five years.
And you can opt to pay tax on it or report it as taxable
income any time in those five years leading up to that point.
So there are actually some strategies of timing and planning of releasing those
gains in certain years,
say when your income is low, or sometimes even low enough where you're in
a 0% tax bracket. You don't have to pay tax on it anyway.
So there are some planning opportunities. But kind of worst case is five years
later, you, you got to pay tax on that first $100,000 gain.
But there's two parts to this opportunity zone.
That's the deferral part. Remember I talked,
talked to you about like. The deferral, which is good,
but not great. And then there's a permanent tax savings,
which you can get the permanent tax savings.
It comes later. That's if you hang on to this investment.
So say you took. That $100,000 invested it.
Say you bought a small studio apartment as a real estate investment.
10 years later,
if that studio apartment say it's worth 500,000,
it just jumped way up in value. And you have a $400,000 gain at
that point, as long as you held it for 10 years,
you don't have to pay gain on that property.
Like after, as long as you hold it 10 years, you never have to
pay gain any tax on it. I they
that new growth because I know it's really confusing. I mean, if I had
charts and graphs, you'd get it. It honestly took me when they released this
in 2018. It took forever to figure this out. So if you created it
and asked for that concept, that's amazing. And I'm proud of you.
But you defer the first game that you don't want to pay tax on
now for five years. And then the next game,
you got to hang on to it for ten years. And then you never
have to pay. Tax on that new growth. After you buy it,
and then it grows. Um,
so that's like, that's the main,
the main parts of opportunity zones. They,
they tweaked a lot. They tweaked. Like the qua- qualifying the income
threshold that governors can evaluate that the area's on.
They actually increased. They need to have it.
They need higher income to qualify.
Alright, let's see how. How did they, what was that,
the 70% it was?
Oh, where was that? It's like,
the amount, like, the people that qualify,
like, the areas, w and then say the governor's looking at a map,
there's a, they need to have like a certain percentage of the poverty level
to qualify certain areas for it. But it's act,
I think it got a little more restrictive on what they could qualify for.
Umm, but they did,
because it's always changing, income levels are changing,
umm,
cities and towns and development's always changing,
uhh, so there are once every ten years,
the governor's- Sure. They're going back and redoing that.
And it looks like 20, 27.
They're gonna go and re-pick these opportunities.
So right now, like, there's, there were some properties I was looking at that
I wanted to invest in. They were like, literally across the street.
From, or like, on the border of these opportunity zones.
And if they would have just expanded it one block or one street over
it, it could change. Like, these opportunity zones,
becu- as of those added tax benefits,
I've seen they actually are more valuable.
They're more valuable to certain investors. And so it was definitely a bonus.
Um, so I th-really,
they covered the main parts. So it's,
Uhh, five years. You've got to pay the tax after five years.
You hold on to it for ten years to avoid the tax altogether.
Uhm,
let's see. Yeah,
that's really it. There's, there's one,
there's one key difference. Well,
the one other key difference in this, that there is a qualified,
rural opportunity fund, where a f- after five years,
um,
in, in the rural area. And actually,
I don't believe they have, even have a map for this.
It's just like a self-qualification process.
And they, I'm, this might change. The, uhh, uhh, I might be wrong here,
but that's, from my research on it so far,
a qualified rural opportunity area,
the rural opportunity fund area,
is an area that has, this is one thing I've got to look up.
It's got, uhh, uhh, like a population of less than 50,000.
And, so outside big cities,
rural areas, of course, that's the definition of it.
So they've, they've come out and defined it. And if.
If you're investing in an opportunity zone fund or if you're creating one or
forming an LLC in these rural areas,
the benefit. So I'll just jump to the benefit.
The benefit is after five years. Remember,
I said you've got to pay tax on it after five years.
But with this one, after five years,
whatever you bought that property for, you get a 30% bump in the basis.
So, that hundred. $100,000 example, you take a hundred thousand dollars,
you pull it, you roll it into this property.
Your basis was actually,
well, your base is a hundred thousand dollars, because that's what you bought it
for. You get a 30,000. A thousand dollar bump in the basis of that
property. So you're paying tax on $30,000 less.
So it's not a $30,000 or like, check in your pocket,
but it could be a $10,000 check,
depending on your tax rate. It's a $30,000 bump in the basis.
And then they've, they've changed. They have another requirement where you have to
improve if you're buying a property and you're not building it brand new.
Um, you actually have to improve the property,
like on existing buildings, you've got to put a certain dollar amount into that.
And it's like double what your cost was to qualify on,
like, if you're putting new construction into it, if that, those new construction- in
the street. And why I'm construction and new dollars going into the development will
count. Now, instead of doubling what you first bought a force,
like 100% of your purchase price, now you only have to go up to
50% of the purchase price. So that's, that's another big part.
So this, so to kind of wrap it up,
I know there's a lot of moving pieces and it really,
the benefit really comes when you're looking at your own numbers and deciding if
it makes sense. A lot of times,
what's going to trigger this is if, you have a big capital gain and,
and you don't want to pay tax on it, that's the second part.
And you are potentially interested in real estate and either p- putting money into
a fund, which someone else is managing,
or your own real estate, that you're managing or a smaller project
doesn't have to be something huge, or you're looking at becoming a business owner
or rolling f- funds into a business, or buying a business that's in these,
in these, uh, uh, qualified opportunities on areas.
So if it's, if that's you, then I would start strategizing and seeing if
there's opportunities here. A big part of all this.
Is doing, like, a long term tax projection and just timing,
like, okay, well, this year my income's this, next year's this,
over the next five years, it's this, five years it's this,
but it's just sitting down with your tax advisor,
doing your tax planning. And strategies and just documenting it and coming
up with solutions, because it's not going to be the correct or it's not
going to be the same answer for everybody. But that's it.
That is, that's a lot for opportunities on funds.
But the biggest news here is that they are back.
They have been made permanent. They're not changing.
They're not going away where they are changing, but they're not going away in
2026, like we thought they were. That was going to be a cliff.
That was the last year. We're going to be able to do it. You
can still defer gain for five years.
You can still get tax-free gain if you hold on to it for 10
years. They're still awesome opportunity here.
So I think it's great for real estate investors, great for investors in general.
And that is it.
Hope that helps. See you guys. you
