How were Opportunity Zones created?

Opportunity Zones were added to the tax code by the Tax Cuts and Jobs Act on December 22, 2017.

Have Opportunity Zones been around a long time?

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.

How do Opportunity Zones spur economic development?

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.

What is a Qualified Opportunity Fund?

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.

Do I need to live in an Opportunity Zone to take advantage of the tax benefits?

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.

I am interested in knowing where the Opportunity Zones are located. Is there a list of Opportunity Zones available?

Contact us at (720) 588-2000 for a full list of available Opportunity Zones

What is a DST?

A Delaware Statutory Trusts, (DSTs), allow owners of real estate to sell their rental properties and potentially defer capital gains taxes. DSTs are derived from Delaware Statutory law as a separate legal entity.

DST’s also qualify as a 1031 like-kind exchange. Well known to real estate investors, a 1031 like-kind exchange allows you to defer the capital gains tax on the sale of investment property by reinvesting the proceeds into a similar qualifying property, and potentially permanently eliminating capital gains and depreciation recapture to your heirs.

As a result DSTs have become an investment vehicle for investors who want the benefits of owning real estate without becoming a “landlord”, as well as current real estate investors who no longer want the responsibilities of being a landlord.

What are the characteristics of REITs vs LLC vs DST?

Primarily higher cash flow, 1031 deferral opportunities, PIG, the ability to exchange a leveraged property, real estate type diversification, and whether or not the property is professionally managed.

What is the difference between a DST and a REIT?

While DST’s and REIT’s have some similarities and both invest in real estate, there are some major differences

  • An REIT typically owns more properties than a DST
  • A DST qualifies as a 1031 like-kind exchange to defer the taxes on the sale of your highly appreciated property, a REIT does not
  • A REIT can be integrated to diversify part of your qualified retirement plan like a 401k, a DST can not
  • A REIT can be a publicly traded entity, or a private placement investment. A DST is a private placement investment
What is a 1031 exchange?

A 1031 like-kind exchange allows an investor to potentially defer the capital gains tax on the sale of highly appreciated investment property by reinvesting the proceeds into qualifying investment real estate.

Does a DST qualify as a 1031 exchange?

Yes, a DST qualifies as a 1031 like-kind exchange. That means you may be able to defer your tax bill AND still be invested in an income producing property.

Why not just buy into a REIT if you don’t need a 1031?

REITs (publicly traded) are generally very large, own old buildings, buildings are fully depreciated, were purchased when real estate was high, trade like a stock so are very volatile in valuation, and tend to pay lower yields

Can anyone invest in a DST?

No, in order to participate in a DST you must be an accredited investor. An Accredited Investor is defines as having a minimum of 1 million dollars of net worth and an annual income of at least $200,000 individually, or $300,000 as a couple.

Can you choose the type of property to invest in?

Yes, you have the opportunity to select the property you want to invest in. At Madrona Financial Services our CPA’s vet every investment property and we use a discipled set of investment criteria as part of our vetting process. This is all done before we present any opportunities to you.

Can you get regular income from a DST?

Yes, in fact, you normally invest in properties that are already income producing.

Can you leave a DST to your heirs?

Yes, a DST is an easily divided asset you can leave your heirs as part of your legacy plan.

What are the internal management fees?

Generally 2% up front and 2-4% per year internally

Can clients receive rent escalations?

Yes, depending on the property type. For example, a retail store lease doesn’t have escalators, an apartment complex would.

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Investment advice is offered through APO Financial Services, LLC (“APO”), 10155 Westmoor Drive, Suite 175 Westminster, Colorado 80021-2627, an investment adviser registered with the state of Colorado. Registration with the state of Colorado should not be construed to imply that the state of Colorado has approved or endorsed qualifications or the services APO offers, or that or its personnel possess a particular level of skill, expertise or training. Investment advisor representatives of APO may only conduct business with residents of the states and jurisdictions in which they are properly registered or exempt from registration requirements. It is important to read our disclosures available at https://apofinancial.com. Additional information pertaining to APO’s registration status, its business operations, services and fees and its current written disclosure statement is available on the SEC’s Investment Adviser public website at https://www.adviserinfo.sec.gov.