'Qualified Opportunity Zones' - are they worthwhile?

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bgoodwin0922
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'Qualified Opportunity Zones' - are they worthwhile?

Post by bgoodwin0922 » Sun Apr 15, 2018 4:58 pm

Hello all,

I'm a long-time lurker, but I haven't seen much talk about this particular topic of the new tax laws, so I thought I would bring it up.

I listened to an episode of Freakonomics "Why the Trump Tax Cuts are Awesome/Terrible (Part 1)" which mentioned very briefly a new program which allows deferring capital gains from current investments by re-investing them within 180 days into "Qualified Opportunity Zone" funds, which would then have more tax benefits the longer you hold (at five years, seven years and 10 years). Timestamp is around 41:35.

Besides the financial benefits, the idea behind it, according to the below source material, is to promote investment and development in "distressed" areas where larger-than-normal portions of the community are in poverty or unemployed. Some say it will help, some say it will only hasten gentrification.

My questions to the group are:
  1. How do you feel in general about this newly-formed tax benefit?
  2. As buy-and-hold type investors, could the option to defer even more of your tax liability persuade you to re-invest your CG into an "Opportunity Zone Fund" rather than back into VTSAX or another equity fund? Obviously there would seem to be more risk involved.

I'm just reading and learning about all this within the past few minutes from the below sources if anyone hasn't read up on this yet:
  • Here is an interactive map where you can view which sectors of each state are eligible to be nominated for the "Opportunity Zone" tax benefit.

Thanks all, feels good to actually compose a post!

MrPotatoHead
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Re: 'Qualified Opportunity Zones' - are they worthwhile?

Post by MrPotatoHead » Sun Apr 15, 2018 5:56 pm

Yippee, in before the thread is locked.

I could make a lot of experience based comments for question one, but simply cannot see them fitting in with the guidelines

I'll answer to the title question posted,this way. You need to understand that the point is not necessarily if the project is profitable, the profit for many is made by the mere existence of the project.

And the answer to question two is, read the paragraph immediately above. With that experienced based knowledge the answer would be no.
Last edited by MrPotatoHead on Sun Apr 15, 2018 6:21 pm, edited 1 time in total.

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arcticpineapplecorp.
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Re: 'Qualified Opportunity Zones' - are they worthwhile?

Post by arcticpineapplecorp. » Sun Apr 15, 2018 6:06 pm

I'm glad to see they consider golf clubs and country clubs to be "sinful":
2. Because of the broad assortment of uses of NMTC financing, the second factor for qualifying a project relies on prohibited and disqualifying uses. If the initial location threshold qualification is met, several disqualifying factors may still apply. First, a business or project cannot be operating as a “sin business” as provided in the following list:

a private or commercial golf course;
a country club;
a massage parlor;
a hot tub facility;
a suntan facility;
a racetrack;
a gambling facility; or
a liquor store."
What's sinful about getting a massage for a medical condition (i.e., a legitimate massage and not a code for some sexual activity)?
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

MrPotatoHead
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Re: 'Qualified Opportunity Zones' - are they worthwhile?

Post by MrPotatoHead » Sun Apr 15, 2018 6:25 pm

arcticpineapplecorp. wrote:
Sun Apr 15, 2018 6:06 pm
I'm glad to see they consider golf clubs and country clubs to be "sinful":
As an FYI, you may get around that by recharacterizing the purpose as a watershed for abating storm sewer runoff while providing recreational opportunities. The golf course is just there to pay for what is in reality a giant storm buffer for the community. It all is in the packaging.

mc7
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Re: 'Qualified Opportunity Zones' - are they worthwhile?

Post by mc7 » Sat Oct 20, 2018 12:14 pm

This seems like a reasonable vehicle for deferring and reducing taxes, and I've been disappointed not to find many low-cost options to invest passively. Within the identified census tracts ("opportunity zones"), there are a wide range of real estate and businesses that would qualify. I'm aware of Fundrise, but a bit skeptical. Can't this just be packaged as a mutual fund or ETF? Any other Bogleheads researching this as a potential passive investment vehicle?

StrangePenguin
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Re: 'Qualified Opportunity Zones' - are they worthwhile?

Post by StrangePenguin » Sat Oct 20, 2018 3:19 pm

mc7 wrote:
Sat Oct 20, 2018 12:14 pm
This seems like a reasonable vehicle for deferring and reducing taxes, and I've been disappointed not to find many low-cost options to invest passively. Within the identified census tracts ("opportunity zones"), there are a wide range of real estate and businesses that would qualify. I'm aware of Fundrise, but a bit skeptical. Can't this just be packaged as a mutual fund or ETF? Any other Bogleheads researching this as a potential passive investment vehicle?
I learned about this the other day when the New York Times had another article about it. It sounded like these zones offer an investment possibility that will be exempt from capital gains taxes. ( https://www.nytimes.com/2018/10/18/busi ... zones.html )

My question was the same as the one I quoted here -- is there an easy vehicle for investing in these zones (i.e. an ETF)?
My guess is that the answer is currently "no" (the article calls the new rules a "draft regulation" so I don't think the rules are even final yet). It's possible that the rules are set up in such a way that an ETF will never be feasible (also an ETF can only invest in public companies...).
But if somebody learns of such a thing, I'd be curious to hear about it.

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grabiner
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Re: 'Qualified Opportunity Zones' - are they worthwhile?

Post by grabiner » Sun Oct 21, 2018 11:00 am

mc7 wrote:
Sat Oct 20, 2018 12:14 pm
This seems like a reasonable vehicle for deferring and reducing taxes, and I've been disappointed not to find many low-cost options to invest passively. Within the identified census tracts ("opportunity zones"), there are a wide range of real estate and businesses that would qualify. I'm aware of Fundrise, but a bit skeptical. Can't this just be packaged as a mutual fund or ETF? Any other Bogleheads researching this as a potential passive investment vehicle?
As a passive investor, you probably won't get any benefit, because the market price of the investment will be based on the expected return including any tax benefits. This is the same reason that municipal bonds trade at lower yields than taxable bonds; the city which borrows at a lower rate than a corporation gets most of the advantage from the tax exemption, even though the bondholders pay the taxes.
Wiki David Grabiner

Clarice
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Re: 'Qualified Opportunity Zones' - are they worthwhile?

Post by Clarice » Fri Dec 07, 2018 7:44 am

I would encourage all of you real estate investors to look up your properties’ census tracts and see if they are within an opportunity zone.

You don’t need to invest in a ‘fund’. I can buy a piece of property in a qualifying area, then self-certify that I am the ‘fund’... It looks to just be filling out another tax form.

I think at a minimum these opportunities should be considered whenever there’s the recurring debate of ‘how do I reallocate while lowering CG taxes?’.

quantAndHold
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Re: 'Qualified Opportunity Zones' - are they worthwhile?

Post by quantAndHold » Fri Dec 07, 2018 10:51 am

Clarice wrote:
Fri Dec 07, 2018 7:44 am
I would encourage all of you real estate investors to look up your properties’ census tracts and see if they are within an opportunity zone.
Huh. Interesting. I live in a qualified opportunity zone. I guess that’s what they call gentrified urban neighborhoods now.

Clarice
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Location: Northern NJ

Re: 'Qualified Opportunity Zones' - are they worthwhile?

Post by Clarice » Sat Dec 08, 2018 1:12 am

quantAndHold wrote:
Fri Dec 07, 2018 10:51 am
Clarice wrote:
Fri Dec 07, 2018 7:44 am
I would encourage all of you real estate investors to look up your properties’ census tracts and see if they are within an opportunity zone.
Huh. Interesting. I live in a qualified opportunity zone. I guess that’s what they call gentrified urban neighborhoods now.
Pittsburg?

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