Opportunity Zone Program: Assure Opportunity Fund Services
The Opportunity Zone Program, a tax incentive designed to boost investment in low-income areas, provides organizers in a Qualified Opportunity Fund (“QO Fund”) preferential capital gains treatment by temporary deferment, a step-up in tax basis, and avoidance of additional capital gains tax, with no limit on the investment amount and its corresponding state and federal tax liability.
An Assure Qualified Opportunity Fund (“QOF SPV”) provides accredited investors with a new impact investment structure for long-term investment in real estate projects, energy, housing, manufacturing, and start-ups. The QOF SPV is designed to facilitate investment in multiple projects directed at the connectivity between businesses, people and institutions in and near historically low-income areas.
Opportunity Zone Program Overview
Under the Act, state governors were required to designate census tracts of land with a poverty rate of 20 percent or which have a median family income lower than 80 percent of the area average, as Qualified Opportunity Zones (“QO Zones”). On April 9th, 2018 the U.S. Treasury Department and the Internal Revenue Service (“IRS”) certified QO Zones in 18 states. On June 14th, 2018 additional tracts were certified including areas in all states, territories and the District of Columbia (see below for a map of QO Zones per the Economic Innovation Group).
What is a Qualified Opportunity Fund
A QO Fund is an investment fund (corporation or partnership) formed to invest in Qualified Opportunity Zone Property (“QO Zone Property”). QO Zone Property is property acquired by the fund after December 31, 2017, and at the time of acquisition property that is a qualified interest, and remains qualified during substantially all of the investment holding period. Specific property types are defined as follows:
(1) Qualified opportunity zone stock, which is stock in a domestic qualified opportunity zone business (and remains one) acquired by the fund after December 31, 2017, in a direct sale in exchange for cash;
(2) Qualified opportunity zone partnership interest, which is capital or profits interest in a domestic qualified opportunity zone business (and remains one) acquired by the fund after December 31, 2017, in a direct sale in exchange for cash;
(3) Qualified opportunity zone business property, which is tangible property (substantial use of the property in a qualified opportunity zone) used in a business of the qualified opportunity fund, acquired by the fund after December 31, 2017, where the original use of the property starts with the qualified opportunity fund or the fund substantially improves it (improvements that double the adjusted tax basis of the property over a 30-month period).
For purposes of determining stock and partnership interests, a Qualified Opportunity Zone Business (“QO Zone Business”) is a business in which substantially all of the tangible property owned by the taxpayer is Qualified Opportunity Zone Business Property and is not a business listed under Internal Revenue Code Section 144(c)(6)(B). This section refers to private or commercial golf courses, country clubs, massage parlors, hot tub facilities, suntan facilities, racetracks or other facilities used for gambling, or liquor stores.
To qualify the fund must hold at least 90 percent of its assets in Qualified Opportunity Zone Property. For purpose of the asset test, a Qualified Opportunity Fund should assess the asset percentage after the first six months of the fund’s taxable year, and on the last day of its taxable year, with the average totaling at least 90 percent. Failure to meet the 90 percent requirement subjects the fund to a month-by-month monetary penalty.
To become a Qualified Opportunity Fund, an eligible taxpayer self-certifies by completing a forthcoming IRS form and attaching it to the taxpayer’s federal income tax return for the taxable year. The election for capital gains deferrals is made on the investor’s tax return in which the tax on the gain would otherwise be due.
Investor Requirements and Benefits
To take advantage of the tax benefits, an investor must reinvest an amount equal to the taxable gain recognized from the sale of appreciated assets, within 180 days of the sale, into a Qualified Opportunity Fund.
Depending on the time-frame the investment is held, and subject to a capital gains tax event, an investor may receive the following tax benefits:
(1) Temporary deferral on capital gain tax recognition until the earlier of the sale of the interest, or December 31, 2026.
(2) A step-up in the investor’s basis (10% after five years and 15% after seven years).
(3) If the investment is maintained for ten years or more, avoidance of all capital gains taxes on the sale of the interest.
Assure’s Opportunity Fund SPV Service
Assure provides fund organizers services to investors wanting to invest in stock, partnership interests, or property designated as Opportunity Zone Property. An Assure Qualified Opportunity Fund SPV (“QOF SPV”) facilitates the pooling of individual investments of accredited investors pursuant to Rule 506 of Regulation D. An QOF SPV provides organizers an economical and professional investment structure designed to hold the qualified interest for the requisite tax break incentive periods.
Assure sets up and administers the QOF SPV administration, ensuring compliance with federal and state regulations for entity upkeep and maintenance, providing fund administration services for fund raising, closing, and maintaining the investment’s post-closing activity, including ownership transfers, corporate actions, financial reporting, taxes, and liquidity events.
Assure’s QOF SPV is capable of facilitating investments in OZ Property in any state with designated opportunity zones.