The 2017 tax overhaul bill received a lot of attention for its changes to the tax treatment of real estate and other asset classes. The bill’s “Investing in Opportunity Act” didn’t receive nearly as much attention at the time, but investors are starting to warm to the possibilities of tax-advantaged, socially impactful real estate investments through the Opportunity Zone program.
Created to revitalize economically distressed communities using private investments rather than taxpayer dollars, taxpayers who make investments in Qualified Opportunity Zones are eligible to benefit from capital gains tax incentives available exclusively through the program.
When investors divest appreciated assets, such as stocks or real estate, they realize a capital gain, which is a taxable event. Investors with unrealized capital gains may be able to defer, reduce, or even eliminate federal capital gain tax by realizing capital gains assets and investing the proceeds into a Qualified Opportunity Zone Fund (QOF).
In exchange for following the rules of the Opportunity Zone program and investing in Qualified Opportunity Zones through QOFs, investors can receive substantial capital gain tax incentives immediately and over the long term. Under the Opportunity Zone Program, if investors reinvest a capital gain into an Opportunity Fund, they can defer and reduce their tax liability on that gain. Beyond that, they can also potentially receive tax-free treatment for all future appreciation earned through the fund. Together, these tax incentives can boost after-tax returns for Opportunity Fund investors.
Investment decisions driven by tax strategy can be sub-optimal at the portfolio level.
In the near future, the IRS and Treasury Department will provide more information and guidance on the program. Contact us if you would like to discuss Opportunity Zone investments with one of our Wealth Management Relationship Managers.
Joshua is senior vice president and manager of financial planning solutions with Associated Private Client Services.
Joshua is senior vice president and manager of financial planning solutions with Associated Private Client Services. Joshua manages a team of lead financial planners across the Associated footprint with a focus on providing an exceptional client experience regarding goal based financial planning and investing. Joshua and his team provide personalized financial planning, trust and estate planning, insurance and risk management, and investment management services for high-net-worth individuals and families. He has been a member of the Associated team since 2003, having experience in branch management, financial planning, investment advisory services, and a personal trust administration.
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