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LIDO Consulting held its Family Office Symposium on Qualified Opportunity Funds QOF and Qualified Opportunity Zones,  QOZ.

QOZs/QOFs Take Center Stage at LIDO Family Symposium

LIDO Consulting held its 14th Annual Family Office Investment Symposium in March in Santa Monica, CA. One of the panels garnering the most attention was “Opportunity Zone Investments: How to Save Millions of Dollars in Capital Gains Taxes.”

The panel provided an overview of Qualified Opportunity Zones (“QOZs”) and the potential benefits of Qualified Opportunity Funds (“QOFs”). In short, QOFs offer a tax deferral on current capital gains and the possible elimination of future appreciation, assuming certain requirements are met. If the investment in the Opportunity Fund is held until 2026, the investor will receive a 15% step-up on the deferral, ultimately paying 85% on the deferred capital gain. Furthermore, if the investment in the QOF is held for ten years, the capital gain on the appreciation of the fund investment is eliminated.

The panel continued with the requirements that must be met in order to receive such enticing tax incentives. The conversation centered on the required time period in which one needs to invest, the fund’s requirements with respect to building/property improvements, and the fund’s mandatory biannual testing.

In light of the QOZ initiative, the panel is, interestingly, still seeing 1031 exchanges, with most transactions occurring in areas of developer and investor certainty—generally eschewing those areas of uncertainty – and not necessarily within Opportunity Zones.

The discussion moved on to structuring of funds and what the panel has seen – the multi-asset versus single-asset structure.  All members were in agreement that the family offices moving forward in setting up opportunity funds were structuring them as single-asset funds. However, the number of executed transactions have not been considerable as we are all waiting on the highly anticipated next round of proposed regulations, which should be released any day. The panel was hopeful that the new regulations will address issues surrounding areas of uncertainty as they relate to operations, distributions and exit strategies.

The group concluded with some recommended strategies to minimize the issues and maximize the benefits:

  • Consider location.
  • Don’t invest for tax purposes only.
  • Bifurcate commercial and personal investments.
  • Price accordingly.
  • Thoroughly vet the investment structure.
  • Understand state implications.

Clearly, QOZs and QOFs have potential to be the real estate investment du jour.

Stephanie Hines, Partner in EisnerAmper Personal Wealth Advisors Group, provides expertise in planning and compliance for ultra-high and high net worth individuals in the areas of personal and fiduciary income taxation, succession and estate taxes.

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