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This document has been prepared by Newmark Grubb ACRES for advertising and general information purposes only. While the information contained herein has been obtained from what are believed to be reliable sources, the same has not been verified for accuracy or completeness. Newmark Grubb ACRES accepts no responsibility or liability for the information contained in this document. Any interested party should conduct an independent investigation to verify the information contained herein.

OPPORTUNITY ZONES WERE CREATED BY THE U.S. CONGRESS THROUGH THE TAX CUT AND JOBS ACT PASSED LATE 2017

THE GOAL OF THE OPPORTUNITY ZONES IS TO PROVIDE LONG-TERM PRIVATE SECTOR CAPITAL INVESTMENT THROUGH OPPORTUNITY FUNDS IN ECONOMICALLY DISTRESSED COMMUNITIES WITH THE BENEFIT TO INVESTORS OF CAPITAL GAINS TAX DEFERMENT AND/OR STEP-UP IN BASIS.

THE GOAL

OPPORTUNITY ZONES FORMATION• THE TAX CUT AND JOBS ACT AUTHORIZED STATE GOVERNORS TO ASSIGN 25% OF ALL LOW-

INCOME CENSUS TRACTS (20% POVERTY RATE) WITHIN EACH STATE TO BE AN OPPORTUNITY ZONE

• THERE ARE A FEW OTHER WAYS A CENSUS TRACT CAN BE DESIGNATED AN OPPORTUNITY ZONE WITHOUT HAVING A POVERTY RATE OF 20% OR HIGHER

THE PROGRAM WILL BE MANAGED BY THE U.S. DEPARTMENT OF THE TREASURY AND THE IRS

ECONOMIC INNOVATION GROUP (EIG), A BIPARTISAN PUBLIC POLICY ORGANIZATION, AND ITS PATRON, TECH MOGUL SEAN PARKER OF NAPSTER AND FACEBOOK FAME, PUSHED FOR THE CREATION OF OPPORTUNITY ZONES.

EIG DISTRESSED COMMUNITY INDEX METRIC COMPARISON• DISTRESSED COMMUNITY INDEX COVERS 26,000 ZIP CODES AND 99.9% OF

THE U.S. POPULATION• DISTRESSED COMMUNITY INDEX RELIES ON U.S. CENSUS BUREAU DATA FROM

2012 - 2016• COMMUNITIES ARE SPLIT INTO FIVE DIFFERENT TIERS OF ECONOMIC WELL

BEING: PROSPEROUS, COMFORTABLE, MID-TIER, AT RISK, DISTRESSED

ADULTS W/O A HIGH SCHOOL

DIPLOMA

21.9%

5.4% 6.0%

26.3%

POVERTYRATE

20.5%

41.5%

PRIME-AGE ADULTS NOT IN

WORK

4.7%

14.7%

HOUSING VACANCY

68.2%

146.1%

MEDIAN INCOME RATIO

-3.6%

19.5%

CHANGE IN EMPLOYMENT

-4.7%

10.6%

CHANGE IN ESTABLISHMENTS

PROSPEROUS COMFORTABLE MID-TIER AT RISK DISTRESSED

DISTRESSED MAP

PROSPEROUS MAP UTAH – 49.4% OF POPULATION IN PROSPEROUS ZIP CODES, HIGHEST IN THE U.S.

UTAH – 0.9% OF POPULATION IN DISTRESSED ZIP CODES, 2ND LOWEST IN THE U.S.

UTAHOPPORTUNITY ZONE MAPS

YOU CAN FIND THE NATIONAL MAP SHOWING ALL OPPORTUNITY ZONES HERE: HTTPS://GOO.GL/A38RFT

https://goo.gl/A38rFt

49035113906Total Pop: 4,418

Med HH Income: $43,368

49011126001Total Pop: 5,595


49057201100Total Pop: 2,139


49011125701Total Pop: 3,994


49057200400Total Pop: 1,704


49011125702Total Pop: 3,990


49057210800Total Pop: 3,362


49057200900Total Pop: 4,664


49057200800Total Pop: 4,921


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49035113906Total Pop: 4,418

Med HH Income: $43,368 49035114500Total Pop: 7,305


49035111500Total Pop: 2,051


49035113305Total Pop: 8,130


49035111600Total Pop: 8,557


49035112403Total Pop: 5,648


49035114000Total Pop: 2,067


49035100600Total Pop: 7,100


49035113513Total Pop: 6,197


49035112907Total Pop: 4,784


49035102500Total Pop: 4,354


49035102702Total Pop: 4,225


49035113802Total Pop: 4,195


49035111802Total Pop: 2,638


49035102600Total Pop: 4,647


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49049002802Total Pop: 1,488

Med HH Income: $37,67849049002801

Total Pop: 4,005Med HH Income: $32,811

49049000400Total Pop: 3,840


49049002500Total Pop: 4,743


49049002400Total Pop: 1,261


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UTAH

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• Must be organized as a corporation or partnership for the purpose of investing in Qualified Opportunity Zone property

• Opportunity Funds are the required investment vehicle to invest in Opportunity Zones• Opportunity Fund must be certified by the U.S. Department of the Treasury• Individuals and corporations can self-certify through the IRS by filling out a form• Investors have 180 days to flip a capital gain into a Qualified Opportunity Fund that invests

in Opportunity Zones• Qualified Opportunity Zone Property is property that is

• Stock• Partnership Interests• Business Property

• Hold at least 90% of their assets in Qualified Opportunity Zone property• Loans are not eligible for tax benefits• Opportunity Fund investments in real estate are subject to a substantial improvement

requirement• There are carveouts for so-called “sin” businesses, i.e., casinos, golf courses, massage

parlors, etc. and for financial companies that invest and lend as their core business

OPPORTUNITY FUND REQUIREMENTS

For real estate property to qualify as Opportunity Zone property, the real estate property needs to have been acquired by purchase after December 31, 2017 and meet one of the two requirements below:

SUBSTANTIAL IMPROVEMENT• The real estate needs to be substantially improved following the acquisition of the property

Investors cannot just sit on the property• Property shall be treated as substantially improved by the qualified opportunity fund only

if, during any 30-month period beginning after the date of acquisition of such property, additions to basis with respect to such property in the hands of the qualified opportunity fund exceed an amount equal to the adjusted basis of such property at the beginning of such 30-month period in the hands of the qualified opportunity fund

ORIGINAL USE• The original use of such property in the qualified opportunity zone commences with the

qualified opportunity fund or the qualified opportunity fund substantially improves the property, and

• During substantially all of the qualified opportunity fund’s holding period for such property, substantially all of the use of such property was in a qualified opportunity zone

REAL

ESTATE REQUIREMENTS

TAX BENEFITS BY INVESTMENT TERM LENGTH

Deferred payment of invested capital gains until the date the Opportunity Fund investment is sold or exchanged

<5 YEARS

Deferred payment of invested capital gains and 10% step up in basis on invested capital gains

5 YEARS

Deferred payment of invested capital gains until 12/31/2026 or the date the Opportunity Fund investment is sold or exchanged (whichever comes first) and 15% step up in basis on invested capital gains

7 YEARS

Benefits of the seven year investment term and any capital gains realized from the Opportunity Fund investment itself is completely tax exempt

10 YEARS

COMPARISON 1031 OPPORTUNITY ZONES

Use of property Must be like-kind property Do not have to be like-kind

Nature of property Only real property, nopersonal property

Tangible property used in a trade or business, can be real or personal, and substantially all of it must be located in an Opportunity Zone

Identification of replacementproperty

Replacement property must be identified in 45 days, with limits on numbers of properties No requirement

Closing on replacement 180 days 180 days

Proceeds that must be invested Entire proceeds from sale Only the gain from the sale

Partnership interests Not allowed Allowed

Stock in corporations Not allowed Allowed

Personal property Not allowed Allowed

Time of recognition of deferred gainUpon sale of replacement property (unless further deferred in another like-kind exchange)

Earlier of sale of opportunity zone fund or December 31, 2026

Time of recognition of gain over and above deferred gain

Upon sale of replacement property (unless further deferred in another like-kind exchange)

Upon sale of opportunity zone fund unless held for more than 10 years, in which case there would be no gain

Income tax basis step up for holding property five or seven years None 10% if 5 years before December 31, 2026,

15% if 7 years before December 31, 2026

Related parties Not prohibited, but 2 year holding period after exchange required Sale to related party cannot be deferred

Improvement or use requirement NoneSubstantial improvement of the property or original use begins with a qualified opportunity zone business

COMPARING 1031 EXCHANGES AND OPPORTUNITY ZONES The table below has general comparisons of deferring capital gains using either a 1031 Exchange or Opportunity Zones.

5-10+ YEARS SIMPLIFIED INVESTMENT EXAMPLESCENARIO: A Capital Gain of $100 Realized and Reinvested in 2018

ASSUMPTIONS: 6.0% annual appreciation compounded once annually, no other state or local taxes

Non-Opportunity Zone Property Opportunity Zone Property

Holding Period

Total Tax Liability

After-Tax Funds

Available

After-Tax Annual Rate of Return

Total Tax Liability

After-Tax Funds

Available

After-Tax Annual Rate of Return

Difference in After-

Tax Annual Rate of Return

5 Years $30 $72 -1.12% $29 $104 0.86% 1.97%

7 Years $33 $82 0.99% $32 $118 2.41% 1.42%

10 Years $38 $98 2.58% $20 $159 4.74% 2.16%

RESOURCES

https://eig.org/opportunityzones

https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions

https://fundrise.com/education/blog-posts/what-are-opportunity-zones-and-how-do-they-work

https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-new-opportunity-zone-tax-incentive

FAQs

IRS ISSUE PROPOSED REGULATIONS

https://eig.org/opportunityzones

https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions

https://fundrise.com/education/blog-posts/what-are-opportunity-zones-and-how-do-they-work

https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-new-opportunity-zone-tax-inc

www.ngacres.com801.578.5555

this document has been prepared by newmark grubb acres for ... · high school diploma 21.9% 5.4%...

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