QOZ Fund for Medical Marijuana Grow Operation?
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[{"id": "ebmww85", "text": "Call a tax attorney or CPA. \n\nI had a conference with a tax lawyer at my office yesterday. The sin business thing is a little confusing: for instance you are allowed to have a bar, but you can't have a liquor store (you can't have a place that allows the customer to walk out of the store with alcohol). This may be similar where you could have a grow-op that sells to distributers and not direct to consumers. However, since marijuana is still federally illegal and the OZ's are part of the federal tax bill, I would be very skeptical of them allowing any marijuana business to qualify for the tax benefits.\n\nAlso, you can't just place any capital into a fund and use it in an OZ. The majority of the fund (I believe 90%) has to come from capital gains i.e. sale of real estate, securities, a business, and a few others.", "replies": [{"id": "ebmx7pi", "text": "Yes I know this, but there is tons of private equity groups out there putting together OZ funds. They are getting the gains from investors that happen to be having a gain event. It\u2019s possible. ", "replies": [], "depth": 2}, {"id": "ebmxm5o", "text": "The last sentence is not accurate.  90% of the fund's $ must be invested in \"qualified opportunity zone business property\".  The $ in the fund can come from any source.  You just don't get the tax benefits if the investment proceeds are not from capital gains.", "replies": [{"id": "ebn1vkv", "text": "Do you have a source on this?  I have been trying to verify but am having trouble finding this specifically spelled out.", "replies": [{"id": "ebn696n", "text": "26 U.S. Code \u00a7 1400Z-2 (e):\n\n\"(1) Treatment of investments with mixed funds: In the case of any investment in a qualified opportunity fund only a portion of which consists of investments of gain to which an election under subsection (a) is in effect\u2014 (A) such investment shall be treated as 2 separate investments, consisting of\u2014 (i) one investment that only includes amounts to which the election under subsection (a) applies, and (ii) a separate investment consisting of other amounts, and (B) subsections (a), (b), and (c) shall only apply to the investment described in subparagraph (A)(i).\"\n\nhttps://www.law.cornell.edu/uscode/text/26/1400Z%E2%80%932\n\n", "replies": [{"id": "ebpidn9", "text": "You rock!  Okay to clarify though, subsection (c) is about basis being equal to fair market value on the date of sale if you hold for 10+ years.  So if 80% of the funds contributed to an OZ fund are 'new money' &amp; not capital gains you wouldn't get either tax advantage on the 80%?  \n\nIt seems kind of odd that you wouldn't be allowed tax-free capital gains on appreciation if your bring in new money...  Obviously you couldn't get the other deduction or deferment benefits since there is nothing to defer with new money.", "replies": [{"id": "ebpw35o", "text": "I agree it is odd that you would not get the 10 year benefit regardless of whether the investment was from capital gains or not, but that is how it is drafted.  Some are expecting this could change as further guidance emerges.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ebmxhaj", "text": "Med MJ is still illegal under federal law", "replies": [{"id": "ebmy2y7", "text": "Honestly this completely slipped my mind, thank you for pointing it out.", "replies": [{"id": "ebnc4lg", "text": "Maybe you create separate entities for the real estate and business and structure the opportunity zone investment around the real estate only.  Lease the real estate to your grow operation and make the lease term a percentage lease so the real estate investors have some exposure to the business.  I\u2019ve been thinking about the same thing.", "replies": [{"id": "ebnfaex", "text": "I like this idea", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ebn3o5o", "text": "Good luck getting Bank financing.\n\nIt's still fedrally illegal.", "replies": [], "depth": 1}, {"id": "ebn6h71", "text": "FYI land does not count as basis according to the QOZ law, so when you're thinking about what you have to spend in improvements to qualify for QOZ treatment, you can deduct the value of the land. EG if you bought a $1.5m peice of real estate and $500k of the purchase price was allocated to a building on site and the rest was allocated to land, you would only need to spend an additional $500k to qualify, not the full $1.5m.\n\n&amp;#x200B;\n\nI am not a CPA or a tax attorney so check with them before taking advice on reddit. I have been immersed in learning about QOZ's and can tell you there is a LOT more complexity that comes with investing in them than is being portrayed by the popular media. Almost so much so that they cease to make sense for most investments that don't fall into the very narrow range defined by the law and the subsequent guidance from the treasury. ", "replies": [], "depth": 1}, {"id": "ebnk2kf", "text": "You will have a lot of hurdles. First one is applying for and winning a license. This is a very difficult process that requires significant expertise, time and organization. In the applications, you need to have your parcel tied up.\n\nYou'll notice that in areas that have open applications for licenses, properties that are properly zoned and setback from schools, residential, religious institutions, etc. are very much picked over.\n\nFinally, as others have mentioned, is financing. No federally backed lenders will touch the deal OR the proposed business. There are some smaller banks that will play ball, but they are tough to find.\n\nBottom line, cannabis-related real estate is highly regulated and sharp owners/investors are fully aware of what they have based on the number of calls they've received from operators trying to purchase/lease conforming space.", "replies": [], "depth": 1}]