Discover how you can leverage both 1031 Exchange and Opportunity Zone Funds (OZ Funds) to potentially achieve full tax deferral! These powerful tools offer flexibility and strategic advantages for your real estate investment sales.
Discover how you can leverage both 1031 Exchange and Opportunity Zone Funds (OZ Funds) to potentially achieve full tax deferral! These powerful tools offer flexibility and strategic advantages for your real estate investment sales.
A newer addition to the tax code, IRC Section 1400, commonly known as the Opportunity Zone (OZ) provision, provides attractive tax benefits. These include:
Delay taxation on eligible gains.
Exempt new gains on assets held for at least 10 years.
A newer addition to the tax code, IRC Section 1400, commonly known as the Opportunity Zone (OZ) provision, provides attractive tax benefits. These include:
10% reduction in deferred gains.
15% reduction in deferred gains.
Capital gains tax due on remaining 85% of deferred gains.
100% tax exclusion on new gains (basis equals fair market value at sale).
While 1031 Exchange and OZ rules operate separately, an OZ investment can serve as a fallback. If replacement property is not identified within the 45-day window of a 1031 exchange, investors can redirect proceeds to an OZ Fund. From day 46, you have an additional 135 days (up to 180 days from the initial sale) to invest in an OZ Fund. Key Benefit: Unlike a traditional 1031 exchange, only the gain (not the entire proceeds) needs to be invested in the OZ Fund.
Start by completing a 1031 exchange into a qualifying replacement property. Then, elect OZ Fund status for the entity holding the property. Deferred capital gains or syndicated funds can be used to substantially improve the property, enabling:
Investors can split proceeds between the two strategies:
This hybrid strategy ensures proportional tax benefits for both 1031 exchange and OZ Fund investments.
It’s crucial to understand what’s not allowed
OZ Funds are not considered like-kind real property under Section 1031.
Failing to reinvest within the required period disqualifies investments from OZ benefits. For example, proceeds from a 1031 exchange cannot be invested in an OZ Fund after the 180-day reinvestment window.
Finding the right strategy—or combination of strategies—is vital for success. At DontPayTax.com, we advocate a team-based approach to ensure your specific financial needs are met. We’ll collaborate with your current tax professional (or provide one if needed) to determine the optimal path for your upcoming real estate sale.
Let’s help you unlock the full potential of these powerful tax tools. Book your appointment online now and start planning your investment success.
Disclaimer
The tax-related information on this page is for informational purposes only and should not be considered tax or legal advice. Always consult your tax or legal adviser before making decisions. Our team is happy to work with your adviser to craft the best strategy for your unique circumstances.
Begin searching for replacement properties months before selling the relinquished property.
A QI ensures compliance, manages funds, and guides you through the process.
Keep meticulous records and adhere strictly to IRS deadlines.
Always list alternative options to safeguard against unforeseen issues.
Discover how DontPayTax.com can help you maximize savings and transform your investment strategies for long-term success!
IMPORTANT DISCLOSURE: The tax-related information contained on this site should not be construed as tax or legal advice specific to your situation, and should not be relied upon in making any business, legal or tax-related decision. Please consult your tax or legal adviser for further information. We welcome the inclusion of your tax adviser to further determine what type of capital gains tax strategy works best for your unique set of tax circumstances. This website is neither an offer to sell nor a solicitation of an offer to buy any security which can be made only by a prospectus, or offering memorandum, which has been filed or registered with appropriate state and federal regulatory agencies, and sold only by broker dealers and registered investment advisors authorized to do so. 1031 exchange services are provided by a qualified intermediary that is a wholly owned subsidiary of Accruit LLC, an Inspira Financial solution. The provider of these materials is not an agent or employee of, nor otherwise affiliated with, the qualified intermediary. The above coverages and processes are available through Accruit LLC.
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