Crain’s: What are the main questions investors

Opportunity zones: profit potential may have when considering an opportunity-zone

fund?

in underdeveloped areas Bokiess: When the deferred capital gains become

taxable in 2026, the money will still be tied up in the
opportunity-zone fund, so investors will need cash from
other sources to pay the tax. Also, under the proposed
regs, to exclude the gain on the sale of the fund, the

Q
fund must be sold by Dec. 31, 2047. Some commenta-
ualified Opportunity Zones, a creation of is permanently excluded. If the QOZ is held for at least tors believe this timeline will be eliminated or extended.
the 2017 Tax Cuts and Jobs Act, are one seven years, 15% is permanently excluded.
of the most interesting investment tools to Based on current law and the current guidance, the
Crain’s: How would someone form a fund exclusion of gains on the appreciation of the QOZ in-
come to market in a long time. or find one to invest in? What is the best structure vestment only applies to the sale of the fund shares or
for these funds to take advantage of the tax partnership interest itself. There is no guidance yet on
QOZ funds incentivize investment in underdeveloped incentives? the tax ramifications of the fund directly selling assets
communities, offering a novel way to reduce capital
after the 10-year period. Further, there is no guidance
gains tax liability. But they’re complicated, and de- Bokiess: There are lists of third-party opportunity yet on the ramifications of the fund selling assets and
termining what qualifies as a QOZ requires consider- zone funds soliciting investors on various websites. purchasing new QOZP with the proceeds. If a fund
able guidance from the IRS and the advice of expert However, many individuals demonstrate a greater in- sells property at a gain and allocates the taxable gain
accountants. terest in forming and sponsoring their own opportunity to the investors, it defeats one of the tax incentives of
zone fund. investing in a QOF. The IRS has indicated that guidance
To find out more about this new investment opportu-
on these open questions is forthcoming.
nity, Crain’s Custom turned to Steven Bokiess, a CPA An opportunity zone fund can be either a partnership
and partner who leads the QOZ Consulting practice or corporation. The entity elects to be a QOZ fund by Crain’s: Has your new practice helped clients
at Friedman, a leading accounting and advisory firm attaching Form 8996 to its tax return for the year the form any of these funds yet?
headquartered in Manhattan. Bokiess has more than 20 QOZ election is to take effect. There’s no specific ap-
years’ experience advising prominent real estate orga- proval process, but at least 90% of a QOZ’s assets must Bokiess: We have had numerous discussions with
nizations and brings extensive expertise to the financial be Qualified Opportunity Zone fund property (QOZP). clients and prospective clients interested in forming
arena. He is considered an expert in the new QOZ field. This includes qualified opportunity zone stock, qualified an opportunity-zone fund. We’ve utilized professionals
opportunity zone partnership interests and qualified with backgrounds in various areas, including extensive
opportunity zone business property. real estate, tax and fund expertise. One of my clients
has formed a fund with the intent of purchasing raw
Crain’s: The goal of opportunity-zone funds is land and developing a multiple-unit rental property.
to defer, reduce or eliminate capital gains tax on Other clients and prospects are waiting for additional
the investment. What entities are able to do this, regulatory guidance before moving forward.
and how is it accomplished?

Bokiess: Individuals, C corpo-

Steven Bokiess, CPA rations (including RICs and REITs),
Partner and QOZ partnerships, S corporations, trusts
Consulting Practice
Leader
and estates are eligible to defer
gains through an investment in
an opportunity-zone fund. The
investment in the opportunity-zone
fund has to be for cash, up to the

OPPORTUNITY ZONE
Crain’s: Can you review what Qualified Oppor- amount of the capital gains. The
tunity Zones are and explain the tax benefits of taxpayer elects to defer the invest-

TAX INCENTIVE
investing in opportunity zone funds? ed capital gains on Form 8949 filed
with that year’s income tax return.
Bokiess: Qualified Opportunity Zones were creat-
ed under the 2017 Tax Cuts and Jobs Act as a tax-in- Either the flow-through entity (i.e., Map your investments
centivized investment initiative meant to spur economic partnership, S corporation, trust or
estate) or its partners, shareholders
for the greatest tax advantages
growth in low-income communities. QOZs allow
individuals and businesses to significantly minimize or beneficiaries can elect to defer
taxes on capital gains and also provide investors with the gain and invest in an opportu-
additional capital to expand existing businesses, form nity-zone fund. For capital gains
new businesses or fund real estate developments. allocated from a flow-through
entity, the 180-day reinvestment
There are over 8,700 certified QOZs, currently spanning period begins on the last day of
approximately 12% of the nation’s land area. Under the flow-through entity’s taxable
the law, the deployment of capital into these areas is year. Alternatively, the partner may
effectuated through investments of cash in a qualified elect for it to begin on the date of
opportunity fund. Opportunity zone designations the realization event.
remain in effect for 10-year increments, after which they
are revised. Crain’s: How can real estate
investors invest their gains?
The tax benefit of investing in an opportunity zone fund
is two pronged, with a temporary deferral of capital gain Bokiess: At the fund level,
recognition for invested capital gains and the permanent investing in rental real estate should
exclusion of post-acquisition appreciation in the QOZ be fine as long as it involves the
funds if the interest is held for 10 years. From the time of rental of multiple units. Since the
realizing capital gains, taxpayers have 180 days to invest purpose of the legislation is for the
them into the QOZ. These deferred capital gains are not property investment to be a long-
taxable until December 31, 2026. If the QOZ investment term hold, developing and selling
is held for at least five years, 10% of this deferred gain property would not necessarily work.
Unlock Opportunity at www.friedmanllp.com/qoz

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