ECONOMY
RYAN COHN, NEWMARK KNIGHT FRANK MULTIFAMILY
IN THE ZONE:
Finding CRE “Opportunity” in QOZ
BY RYAN COHN
QOZ. QOF. QOZBP. Most individuals who
own or provide services for commercial real
estate have heard these terms floating around,
nevertheless how many of us truly understand
the opportunity and are in a position to use it
to our advantage?
WHAT & WHY: QOZ & QOF
The Qualified Opportunity Zone
(QOZ) Program is a tax incentive program
introduced as part of the Tax Cuts and Jobs
Act of 2017 (“TCJA”), designed to encourage
long-term private sector investments in
low-income census tracts and adjacent
census tracts designated as “Qualified
Opportunity Zones,” or “QOZs.” In return
for their investment, the program provides
considerable tax benefits to “Qualified
Opportunity Fund” (QOF) investors if utilized
properly. A “Qualified Opportunity Fund”
or “QOF” investment vehicle is a specially
formed entity that must invest at least 90
percent of its assets in qualified businesses
or real property located in Qualified
Opportunity Zones. When the QOZ Program
was introduced in 2017, it was estimated
that U.S. households and corporations had
approximately $6.1 trillion in unrealized
capital gains. The QOF program is essentially
intended to “unlock” a portion of this massive
figure that otherwise would not be reinvested
in the near future due to tax exposure.
INVESTING IN A QUALIFIED
OPPORTUNITY FUND
Investment in a Qualified Opportunity
Zone, if done properly, provides investors
(individuals or entities) with capital gains
a means of tax deferral, reduction or
elimination, depending on how long the
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QOF investment is held. The motivations
to invest in QOFs are very similar to the
reasons one would consider investing in a
1031 Like Kind Exchange. In order to invest
in a QOF, an investor must have capital gains
from the sale of real property (or anything
else causing gains from a federal income tax
perspective) to an unrelated third party, and
the investor must reinvest within 180 days of
the transaction causing the gain. Investing in
a QOF offers the following distinct advantages
for a long-term investor:
• Opportunity Zone investing requires
much more preparation and foresight
than a 1031 Exchange, including proper
organizational structuring and adherence
to regulations. It also requires filing
actions on the part of the QOF itself
(IRS Form 8996) as well as the individual
investor (IRS Form 8949) with federal
income tax returns.
• Unlike a 1031 Exchange that requires
an investor to reinvest the entire net
proceeds of the transaction causing the
gain, investing in a QOF only requires the
reinvestment of the gains itself (in 180 days
or less). The investor is essentially allowed
to “cash out” or retain whatever proceeds
from the previous transaction are not
capital gains.
• QOF investors are able to defer their taxes
through December 31, 2026 or, based
upon when they sell their investment,
before such date; however, the real benefits
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