Opportunity Zones Investing To Minimize Capital Gains Tax


Today, I’m talking about…

If you are investor and you’re in the habit of investing in property, even in the stock market, then you will be interested in knowing about the opportunity zones. The opportunity zones are designed to spur economic development in depressed neighborhoods, depressed communities. A list of those communities are in the Excel file attached with this lesson. And the benefit you get as an investor in this depressed communities is you get a tax benefit, which means you defer capital gains. How much you defer depends on how long you keep the investment. So, let’s say you sell one of your investments and you have a gain for that investment. Rather than be paying tax on that gain now, you can actually invest in opportunity zone and defer the taxes on that gain.

However, if you keep the investment for at least five years, you not only defer the gain, you also get a 10% off of the first gain excluded from taxable income. And if it’s for seven years, you get 15%. And then if you keep it for over 10 years, you basically pay no taxes on the gain. Let’s take a look at how this looks like in the Excel file.

So, here’s the Excel file you’re going to download below in the course. The opportunity zone has three parts, as I just said. The first part is deferment of gains for monies you invest in opportunity zones; so when you buy and sell rather than paying the gain in that tax year you defer the gain. And then not only do it for the gain, if you keep it for five years, you get to exclude 10% of deferred gain. And if you keep it for seven years, you get to exclude 15% of deferred gain. And if you keep it for 10 years, you basically pay no money on the gain because your basis becomes your fair market value. And so, by the time you take your fair market value minus your sales price, you get zero taxes.

So, here’s a summary of that, here in the Excel file. So, let’s take an example and see an investor, they are going to invest $30,000. They sold their property, and then they had a gain of $30,000. Rather than paying taxes on that gain, they’re going to put that in opportunity zone. And then they ask me that when to sell, they’ll probably get $51,000 for the investment. So, if they were to keep this investment for less than five years, all they’ll get in the current year is a deferment of the gain.

So, let’s say their capital gains rate was 15%. They will get taxed $3150. However, if they kept it for five years, not only do they defer the gain, they get a 10% exclusion which, is $2100, so they get to pay tax on $2100 less, which you can see brings their tax to $2835. If they keep it for seven years, they not only defer the gain, they get to exclude $3150, which brings down their tax to $2677. And if they keep it for 10 years, they get to pay no taxes. Obviously, it’s an investment, you can have gains and losses, so this only works when you have gains. And also, if you’re in a low tax bracket, then it really doesn’t really make much of a difference to you because you’re not paying much taxes on capital gains anyway. So, this is for people who are in the habit of investing and have decent amount of income.

I should also note here that even though where I said that deferred tax 15%, that tax is not going to be paid in the current year, it’s going to be paid at time of sale, which means if this investor holds this tax for four years, they get to pay this $3150 four years later, and not the current tax year. So, the current tax year, they’re actually paying zero. The same thing for five years and seven years. That deferred tax is only paid when the investment is sold, and not in the current year.

Now, let us take an investor who’s making $250,000 in wages, and they have capital gains of $30,000. So, this is without them reinvesting that capital gain in opportunity zone. And then the second scenario we see that they actually invest in opportunity zone, so their capital gains is zero. We can see that based on that, this is a married filing jointly person, so that’s income for them and the spouse. They do get to pay the net investment tax of $1140, and they get a total tax of $48,459. So without the investment, they’re going to pay $5640 more in taxes, because with investment they get to defer that $30,000, but without the investment they get to pay taxes on that. So that’s a $5640 savings. And every single dollar counts, so that’s a savings from that and then other things they can save on. So, it’s worth looking at if you have sizable income and you’re in the habit of investment, because this could be a way for you to increase your return on investment by reducing your taxes.

Finally, in the last tab you can see a list of opportunity zones. You don’t have to live in the same area where you’re making investment, so you can go through this list and see. Or if you’re not in the habit of investing, you can actually join an already established fund and participate. And just like you participate in a mutual fund, you participate in a qualified opportunity zone fund, and basically, the money you get from this fund will also be treated just like I have talked about in this lesson.

You can get the free lessons and free templates by going to bizexceltemplates.com.

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By |2018-12-05T03:09:11+00:00November 11th, 2018|Real Estate|Comments Off on Opportunity Zones Investing To Minimize Capital Gains Tax

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With over 16 years of accounting and finance experience, I know what it takes to make your business profitable. However, in my opinion of what really makes me qualified to work with you is my love for using my God-given gift to help people with numbers. I love difficult problems and my business is to be in the business of helping other people achieve their dream/vision/ goal in the most cost effective and productive way. I am very passionate about my clients and take their problems very personally.