Q. What is an Opportunity Zone?
A. An Opportunity Zone is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Localities qualify as Opportunity Zones if they have been nominated for that designation by the state and that nomination has been certified by the Secretary of the U.S. Treasury via his delegation of authority to the Internal Revenue Service.
Q. How were Opportunity Zones created?
A. Opportunity Zones were added to the tax code by the Tax Cuts and Jobs Act on December 22, 2017.
Q. Have Opportunity Zones been around a long time?
A. No, they are new. The first set of Opportunity Zones, covering parts of 18 states, were designated on April 9, 2018. Opportunity Zones have now been designated covering parts of all 50 states, the District of Columbia and five U.S. territories.
Q. What is the purpose of Opportunity Zones?
A. Opportunity Zones are an economic development tool—that is, they are designed to spur economic development and job creation in distressed communities.
Q. How do Opportunity Zones spur economic development?
A. Opportunity Zones are designed to spur economic development by providing tax benefits to investors. First, investors can defer tax on any prior gains invested in a Qualified Opportunity Fund (QOF) until the earlier of the date on which the investment in a QOF is sold or exchanged, or December 31, 2026. If the QOF investment is held for longer than 5 years, there is a 10% exclusion of the deferred gain. If held for more than 7 years, the 10% becomes 15%. Second, if the investor holds the investment in the Opportunity Fund for at least ten years, the investor is eligible for an increase in basis of the QOF investment equal to its fair market value on the date that the QOF investment is sold or exchanged.
Q. What is a Qualified Opportunity Fund?
A. A Qualified Opportunity Fund is an investment vehicle that is set up as either a partnership or corporation for investing in eligible property that is located in a Qualified Opportunity Zone.
Q. Do I need to live in an Opportunity Zone to take advantage of the tax benefits?
A. No. You can get the tax benefits, even if you don’t live, work or have a business in an Opportunity Zone. All you need to do is invest a recognized gain in a Qualified Opportunity Fund and elect to defer the tax on that gain.
Q. I am interested in knowing where the Opportunity Zones are located. Is there a list of Opportunity Zones available?
A. Yes. The list of designated Qualified Opportunity Zones can be found at Opportunity Zones Resources and in the Federal Register at IRB Notice 2018-48. Further a visual map of the census tracts designated as Qualified Opportunity Zones may also be found at Opportunity Zones Resources.
Q: What do the numbers mean on the Qualified Opportunity Zones list, Notice 2018-48?
A: The numbers are the population census tracts designated as Qualified Opportunity Zones.
Q: How can I find the census tract number for a specific address?
A: You can find 11-digit census tract numbers, also known as GEOIDs, using the U.S. Census Bureau’s Geocoder. After entering the street address, select ACS2015_Current in the Vintage drop-down menu and click Find. In the Census Tracts section, you’ll find the number after GEOID.
Q. I am interested in forming a Qualified Opportunity Fund. Is there a list of Opportunity Zones available in which the Fund can invest?
A. Yes. The list of designated Qualified Opportunity Zones in which a Fund may invest to meet its investment requirements can be found at Notice 2018-48.
Q. How does a corporation or partnership become certified as a Qualified Opportunity Fund?
A. To become a Qualified Opportunity Fund, an eligible corporation or partnership self-certifies by filing Form 8996, Qualified Opportunity Fund, with its federal income tax return. Early-release drafts of the form and instructions are posted, with final versions expected in December. The return with Form 8996 must be filed timely, taking extensions into account.
Q: Can a limited liability company (LLC) be an Opportunity Fund?
A: Yes. A LLC that chooses to be treated either as a partnership or corporation for federal tax purposes can organize as a Qualified Opportunity Fund.
Q. I sold some stock for a gain in 2018, and, during the 180-day period beginning on the date of the sale, I invested the amount of the gain in a Qualified Opportunity Fund. Can I defer paying tax on that gain?
A. Yes, you may elect to defer the tax on the amount of the gain invested in a Qualified Opportunity Fund. Therefore, if you only invest part of your gain in a Qualified Opportunity Fund(s), you can elect to defer tax on only the part of the gain which was invested.
Q. How do I elect to defer my gain on the 2018 sale of the stock?
A. You may make an election to defer the gain, in whole or in part, when filing your 2018 Federal Income Tax return. That is, you may make the election on the return on which the tax on that gain would be due if you do not defer it.
Q. I sold some stock on December 15, 2017, and, during the required 180-day period, I invested the amount of the gain in a Qualified Opportunity Fund. Can I elect to defer tax on that gain?
A. Yes. You make the election on your 2017 return. Attach Form 8949, reporting Information about the sale of your stock. Precise instructions on how to use that form to elect deferral of the gain will be forthcoming shortly.
Q. Can I still elect to defer tax on that gain if I have already filed my 2017 tax return?
Q. How can I get more information about Opportunity Zones?
A. Over the next few months, the Treasury Department and the Internal Revenue Service will be providing further details, including additional legal guidance, on this new tax benefit. More information will be available at Treasury.gov and IRS.gov.
Q: Can I defer section 1231 capital gain net income for a taxable year under the Opportunity Zone rules?
A: Yes. If a taxpayer’s section 1231 gains for any taxable year exceed the section 1231 losses for that year, the net gain is long-term capital gain. A taxpayer can elect to defer some or all of this capital gain under section 1400Z-2 by making an investment of a corresponding amount in a Qualified Opportunity Fund (QOF) during the 180-day period that begins on the last day of the taxpayer’s taxable year.
Q: Can I transfer property other than cash as an investment to a QOF?
A: Yes. A taxpayer can transfer property other than cash as an investment to a QOF. However, a transfer of non-cash property may result in only part of the investment being eligible for Opportunity Zone tax benefits, so that not all of the taxpayer’s capital gain is able to be deferred. See proposed regulations §1400Z2(a)-1(b)(9) & (10).
Q: When I transfer property to a QOF, does my holding period of the property also transfer to my QOF eligible investment?
A: No. The Opportunity Zones tax incentives provisions determine a taxpayer’s holding period in a qualifying investment in a QOF without regard to the holding period of the cash or other property transferred to the QOF.
Q: I deferred gain based on an investment in a QOF, and now that QOF has dissolved before the end of my deferral period. What happens to my deferred gain?
A: When the QOF dissolved, the deferral period ended, and you must include the deferred gain when you file your return, reporting the gain on Form 8949.
Q: I deferred a gain based on an investment in a QOF, and now I gave the investment to my child before the deferral period had ended. Is there anything that I need to do?
A: Yes. The deferral period ended when you gave away the QOF investment. You must include the deferred gain when you file your return, reporting the gain on Form 8949.
Q: When is tangible property “original use” tangible property?
A: Tangible property is original use on the date first placed in service in the qualified opportunity zone for purposes of depreciation or amortization. Used tangible property satisfies the original use requirement if the property has not been previously placed in service in the qualified opportunity zone.
Q: Can inventory in transit be “qualified opportunity zone business property?”
A: Yes. Inventory of a QOF, including raw materials, does not fail to be “used in a qualified opportunity zone” solely because the inventory is in transit from a vendor to the QOF or from the QOF to a customer
The Tax Reform of 2017 is one of the biggest real estate and business development incentives to hit the U.S. in over 70 years.
Recent changes in the tax law created qualified opportunity zones to encourage tax-favored investment in distressed communities throughout the country and U.S.
The Community Development Financial Institutions Fund (CDFI Fund) plays an important role in generating economic growth and opportunity in some of our nation’s most distressed communities.
EIG’s mission is to advance solutions that empower entrepreneurs and investors to forge a more dynamic economy throughout America.
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• This information is for illustration and discussion purposes only. It is not intended to be, nor should it be construed or used as investment, tax, or financial advice, any recommendation, or an offer to sell, or a solicitation of any offer to buy, an interest in any security, including an interest in Azul Opportunity Zone Fund I, LLC (“The Company") or in any other investment or project managed or advised by Azul Asset Management (US), LLC, a Florida limited liability company or its affiliates (“Azul"). Any offer or solicitation of an investment may be made only by delivery of the Company's confidential offering documents (collectively, the "Offering Documents") to accredited investors. Prospective investors should review carefully and rely solely on the Offering Documents in making any investment decision. An investment in the Company is not suitable for all prospective investors.
• Past performance of other investments managed by Azul Asset Management or its affiliates is not indicative of future results that may be achieved by the Company.
• No representation is made that the Company will or is likely to achieve its objectives, that the Company's business plan will be successful, or that an investor in the Company will or is likely to achieve results comparable to those shown or will make any profit or will not suffer losses or loss of principal. An investment in the Company involves risks, as disclosed in the Offering Documents.
• Targeted returns are used for measurement or comparison purposes and only as a guideline for prospective investors to evaluate the Company’s business plan. Targeted returns should be evaluated over the time period indicated and not over shorter periods.
• Any statements regarding future events constitute only subjective views, are based upon expectations or beliefs, should not be relied on, are subject to change due to a variety of factors, including fluctuating market conditions, and involve inherent risks and uncertainties, both general and specific, many of which cannot be predicted or quantified and are beyond Azul Asset Management or the Company’s control. Future evidence and actual results could differ materially from those set forth in, contemplated by, or underlying these statements. In light of these risks and uncertainties, there can be no assurance that these statements are now or will prove to be accurate or complete in any way. Certain information contained herein has been obtained from published sources and from third parties. While such information is believed to be reliable for the purpose used herein, neither Azul Asset Management, the Company, nor any of their directors, officers, employees, partners, shareholders nor affiliates assumes any responsibility for the accuracy of such information.
• This material is as of the date indicated, is not complete, is subject to change and does not contain material information regarding an investment in the Company, including related risk disclosures . No representation is made with respect to the accuracy, completeness or timeliness of information and neither Azul Asset Management, the Company, nor any of their directors, officers, employees, partners, members, shareholders, nor affiliates assumes obligation to update or revise such information. Certain information has been provided by and or is based on third party sources and, although believed to be reliable, has not been independently verified and neither Azul Asset Management nor the Company is responsible for third-party errors. This information is confidential, is intended only for intended recipients and their authorized representatives and may not be distributed to any other person without the Company’s prior written consent.
Summary of the Risks of the Offering
Specifically, investors in this Offering risk losing all capital invested therein and/or may not generate the returns at the levels the Company expects. Prohibition of Transfer of Membership of Transfer and Withdrawal of Membership from the Company; Members may not withdraw without Consent of the Company Manager or in contravention of SEC Rule 144. Opportunity Zone Risks • The Opportunity Zone Program is newly created, and final regulations have yet to be issued, which, when issued, may impact the Fund in unanticipated ways • To take advantage of certain tax benefits, regarding the exclusion of future gains, investors must hold their investments in the Fund and the Fund must maintain its status as Qualified Opportunity Fund, for 10 years • The Manager’s intent to comply with the requirements of Section 1400Z of the Code may adversely affect the timing or structure of exit from investments or the success of those investments. Real Estate Risks • The Fund’s business is subject to all the risks associated with the real estate industry • Investments in real estate are speculative in nature • Many of these factors are not within the Fund’s control and could adversely impact the value of the Fund’s investments. These factors include, but are not limited to: • downturns in worldwide, national, regional and local economic conditions; • conditions affecting real estate in specific markets in which the Fund may invest, such as oversupply or reduction in demand for real estate; • changes in interest rates and availability of attractive financing; • changes in real estate and zoning laws; • environmental and/or engineering issues unforeseen in due-diligence, and changes in environmental legislation and related costs of compliance; • condemnation and other taking of property by the government; • changes in real estate taxes and any other operating expenses; • the potential for uninsured or underinsured property losses; Azul Asset Management (US), LLC - Copyright 2019
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