Qualified Opportunity Zone Investments
Tax Advantaged, Community Impact Real Estate Investing
Overview of the Opportunity Zone Program
Mark Ein, founder and CEO of Capitol Investment, discusses the Opportunity Zone legislation that allows investors to defer taxes on capital gains if they invest in designated areas.
On December 22, 2017, the Tax Cuts and Jobs Act created a new section of the Tax Code
(26 U.S. Code § 1400Z) providing tax incentives for investments in targeted areas in the United States through investment vehicles called Opportunity Funds.
Step-Up In Basis
The purpose of Opportunity Funds is to promote economic development in these select communities, known as Opportunity Zones, by offering investors substantial Federal tax advantages that are only available through the new program.
Investors in an Opportunity Fund not only defer and reduce their existing capital gains tax liability, they can also eliminate future capital gains tax on returns earned from the Opportunity Fund.
“Opportunity Zone investing provides a generational opportunity to compound wealth. Pinnacle Partners is an early first mover in opportunity zones, and has been able to close multiple investments and build a strong pipeline of future opportunities before many funds even launched."
Opportunity Zone Map
Opportunity Zones are census tracts designated by Federal and state governments based on their lower income demographics. The program was created to incentivize investment within these communities by providing material tax benefits to U.S. investors who re-invest any form of capital gains into opportunity funds.
Illustrative Investment Timeline
Jan 1, 2019
Taxpayer generates a capital gain of $1M and is eligible for tax benefits if the gain is reinvested into an OZ-Fund within 180 days.
May 31, 2019
Investment + Deferral
Taxpayer invests the $1M gain into a qualified OZ-Fund and defers $238k of tax liability until the earlier of (i) the investment sale date, or (ii) December 31, 2026.
May 31, 2024
Year 5 Tax Reduction
Deferred capital gains tax reduced by 10%. $238k tax liability is reduced to $214k.
May 31, 2026
Year 7 Tax Reduction
Deferred capital gains tax reduced by an additional 5%. $238k tax liability is reduced to $202k.
Dec 31, 2026
Tax Recognition Date
Given the asset has not yet been sold, taxpayer must pay the $202k deferred capital gain tax liability.
May 31, 2029
Disposition + Elimination
Taxpayer’s $1M OZ-Fund investment has appreciated 7% annually since 2019 and is sold for $2M. Since the asset has been held for 10 years, taxes on the $1M of OZ-Fund capital gains are eliminated, generating significantly higher after-tax profits than a similar investment that is exposed to capital gains taxation.
(1) Assumes long-term capital gains tax of 23.8% (Federal capital gains tax of 20% and net investment income tax of 3.8%), no state income tax and annual appreciation of 7% for both the standard portfolio and the Opportunity Fund Investment.
Pinnacle Opportunity Zone Projects
- Pinnacle is a source of strategic capital for select best-in-class JV Partnerships that include developers, owners and users with actionable opportunities in target Opportunity Zone markets.
- These relationships provide us with a unique sourcing advantage, as well as local market development and repositioning expertise.
- Targeted $100M in capital available for JV equity investment.
- Our investor universe is sourced from low-basis capital asset holders, entrepreneurs, executives, business owners and real estate experts.
- Board of advisors provides unique subject matter expertise.
- Our investors have an opportunity to review projects on a deal-by-deal basis.
- Target OZ markets: Washington, Oregon, and California.*
- Experienced development partners in each target market.
- Single fund for each investment.
*Other markets will be considered with developer/investor relationships.
30+ year real estate experience
Leads developer partnerships
Real estate due diligence oversight
30+ year technology executive
Real estate fund investment experience
Leads investor relations and OZ compliance
Responsible for accounting
Acquisition evaluations and operations.
Pinnacle Partners was established by local real estate professionals, entrepreneurs and finance experts to create a Qualified Opportunity Fund (QOF). Our team has decades of experience in real estate, public and private company operations, venture capital, private equity, hedge funds and tax incentives. Pinnacle Partners will make long-term investments which will generate superior after-tax risk adjusted returns for our investors.
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