What is the process?
Individuals who are realizing a capital gain across all asset classes can invest those monies on a tax deferred basis, as long their gain is invested in a qualified opportunity fund within 180 days of the sale or exchange. The process is very easy and is usually completed within 48 to 72 hours. Agree to subscription agreement, transfer funds, receive stock certificate and tax statement.
In certain situations where an individual is facing the expiration of the 180 day window, we can expedite the process to same day.
What are the investment restrictions?
The capital gains must be invested in qualified opportunity funds that have 90% of their assets invested in qualified Opportunity Zones. Non-capital gain money can be invested into opportunity funds, however there would not step up in tax basis benefits for earnings of non-capital gain money.
How do I qualify?
All capital gains on the sale or or exchange of any property to an unrelated party invested within 180 days are eligible for the tax benefits.
What is the minimum investment amount?
The minimum investment is $250,000.
Can I put 1031 money into a opportunity fund?
Yes. Opportunity Funds are designed to be easier with less hassle than 1031 Exchanges.
Can I invest in the Verte Opportunity Fund using my IRA?
Yes. This would involve establishing a self-directed IRA with a custodian that will hold the asset on behalf of your IRA. While you are free to choose your own custodian, we have partnered with New Direction Trust Company who are familiar with our fund and offer an efficient processing of your investment. You can find more information about investing your IRA in our fund here. And should you wish to proceed with opening an IRA account for this purpose, please select this link.
What can I invest in?
Qualified opportunity stock, partnership interest, or business property are all eligible investments. The Verte OZ Fund is qualified opportunity stock only. Meaning you are investing in the entire interest of the Fund and its holdings.
How do I invest?
Investors can invest in opportunity funds by selling an asset and triggering a capital gain, then subsequently placing that gain in a qualified opportunity fund with 180 days of the original sale. There is a subscription agreement that is signed by the investor and a wire transfer agreement. This is then followed by an execution of the agreement with a wire transfer into opportunity fund account.
How long is the investment period?
The program allows for a stepped-up basis depending on the holding period. A 5-year hold will grant the investment a 10% stepped up basis. A 7-year hold grants the investment an additional 5% of stepped up basis, totaling 15% on the original basis. Finally, after 10 years, investors permanently avoid any capital gains tax on any gains from the opportunity zone fund investment.
What is the investment rollover period?
Investors have 180 days to invest realized capital gains.
Do I use and intermediary like I would with a 1031 exchange?
No. You can take receipt of the gains, as long as you reinvest within 180 days. As an Opportunity Fund we have to certify with the IRS. You receive a tax statement at the end of the year.
Do I have to pay the original deferred taxes?
In part. The original taxes are deferred until December 31, 2026 (or the date of a sale, whichever is earlier). Investors will have to recognize a portion of the deferred gains that year. Investors may benefit from the step up in basis at years 5 (10%) and 7 (another 5%) if they reach either holding period before December 31, 2026.
Where are Opportunity Zones?
The list of designated Qualified Opportunity Zones can be found in IRS Notices 2018-48 (PDF) and in 2019-42 (PDF).
What qualifies as an Opportunity Zone business?
With multiple rounds of regulations, many investors and businesses are uncertain about how a company can qualify as a QOF. Here are the standards:
- At least 50% of labor hours in OZ; or
- At least 50% of revenues in OZ; or
- Headquarters – Management or operational functions in OZ to generate 50% of the gross income
Six additional tests apply:
- Original Use: Leased Real Property does not need to be substantially improved; improvements to leased property are considered original use
- Tangible Property: 70% owned or leased is in the zone
- Intangible Property: 40% of intangible property is used in the activeconduct of the business
- Working Capital: Plan and deploy within 31 months of QOF investment
- Nonqualified Financial Property: Less than 5% of property
- Business Restrictions: No “sin” businesses, such as golf courses, carry-out liquor stores, tanning salons, spas
Are all designated opportunity zones economically distressed?
No. Opportunity zones must meet certain criteria to qualify. Census tracts with over 20% poverty and median family income no greater than 80% of the area medium will qualify. There are also contiguous zones, which are census tracts that are adjacent to a designated opportunity zone, and also do not exceed 125% of the median family income of that same opportunity zone.
Can I put new money into a opportunity fund?
New monies can be invested in an opportunity fund, however the investor would not enjoy the same tax benefits as realized capital gains.
What happens if an investment fails?
These investments carry the same market risk that comes with most venture capital investments.