8901 E Raintree Drive, Suite 140, Scottsdale, AZ 85260 (480) 860-2000

The Opportunity in Opportunity Zones

The 2017 Tax Cuts and Jobs Act created a new tool for economic development that provides tax incentives to stimulate capital investment in areas designated by each state. These targeted areas are called Opportunity Zones (“OZ’s”). 

Investment in OZ’s are made through Qualified Opportunity Funds (“OF’s”). OF’s can invest in multiple projects, but are required to have 90% of their assets invested in OZ’s. Investment in OF’s offer the following benefits:

Program Benefits

Deferral of Existing Capital Gains

image38

  


Step up in Bases

image39

  


Exclusion of Capital Gain on OZ Investment

image40




Can invest basis and/or gain in Opportunity Fund.




Doesn’t have to be “like-for-like”.

Definitions

  • Opportunity Zone (aka “OZ” or ”O-Zone”)
    • Property designated as an OZ and certified by the Treasury.
    • 168 census tracts nominated in Arizona.


  • Qualified Opportunity Fund (aka “OF” or “O-Fund”)
    • Investment vehicle/intermediary between the investor and investment in OZ’s. 
    • Corporation or Partnership certified by Department of Treasury. 
    • 90% of assets must be invested in OZ’s
      • Tested every 6-months

Investment Benefits

image41

PROGRAM RULES

  • Cannot be made with a “related party”.
  • Investment in OF must be made within 180 days of sale/exchange.
  • Investment must be made before December 31, 2026.
  • Can invest original basis and/or gain in the OF.
  • Doesn’t have to be “like-for-like”.
  • Stock, business property, real estate, or other asset classes all qualify.


OF/OZ Example

  • 6/30/18 - Investor sells stock for $12M, $10M of which is gain.
  • 9/30/18 - Investor invests $10M into an OF. OF invests in OZ.
  • 10/1/23 - Investor’s basis is stepped up by $1M (10%).
    • Capital gains now payable only on $9M. 
  • 10/1/25 - Investor’s basis is stepped up by $500k (5%).
    • Capital gains now payable only on $8.5M.
  • 12/31/26 - Investor must pay tax on $8.5M.
  • 10/1/28 - Investor sells $25M OF interest.
    • No capital gains due on $15M appreciation of OF interest.

About SIM OF I

  • Formed as an LLC and certified through the Department of Treasury.
  • Investment in SIM O-Fund provides investor a partnership interest. 
  • SIM will maintain required certifications, ratios, investor reporting, fund management, and ancillary services.
  • SIM will continue looking for newer OZ projects which could be added to future OF’s.