Can you move 1031 exchange into an opportunity zone?
[{"id": "efy3ez6", "text": "Yes. But you'll have to pay the taxes in 7 years. ", "replies": [{"id": "efygota", "text": "I thought you don't pay any taxes if you keep the investment for 10", "replies": [{"id": "efygvtw", "text": "On any new gains. Existing gains are deferred, and potentially reduced by 15% until 2026", "replies": [], "depth": 3}, {"id": "ege6hmn", "text": " Arguably the most compelling feature of the OZ program is that if the investment in the OZ is held for 10 years, the tax basis for that investment upon sale is increased to the fair market value at the time of sale. The investment therefore generates zero capital gains and zero capital gains tax. Investors cannot hold their OZ investment indefinitely. The provisions do require that investors exit their OZ investment by December 31, 2047, certainly a reasonable period of time to dispose of the assets. Upon disposition an investor is free to reinvest the proceeds in real estate or any other asset class.\n\nOn the other hand, while a 1031 Exchange does allow investors to indefinitely roll capital gains into future investments, there is no analogous step up in basis that allows investors to avoid gains altogether, at least while the investor is alive. Once a 1031 Exchange investor sells his or her real estate assets, he or she will realize gains and will have to pay taxes on those gains. Thus, the OZ program is better for investors that may want to shift assets into and later out of real estate. The 1031 Exchange mechanism tends to attract more and more of an investor\u2019s net worth into real estate, without any good mechanism to get it back out of that asset class.\n\n&amp;#x200B;\n\nSource: [https://www.arixacapital.com/opportunity-zone-investment-vs-1031-exchange](https://www.arixacapital.com/opportunity-zone-investment-vs-1031-exchange)", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "efy3jd6", "text": "To add:\n\n-If you own a piece of land or knock down development site, and make significant improvements, will those capital improvements be eligible for opportunity zone incentives? \n", "replies": [{"id": "efygzds", "text": "If they are at least 100% of the existing cost basis. Properties you currently own need to be qualified. ", "replies": [{"id": "efz7qwb", "text": "You are correct sir", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "efy6ujv", "text": "Yes.  It's capital gains.  In fact, anything can go in an OF, technically....just only Capitals gains will get the benefits.", "replies": [], "depth": 1}, {"id": "efya1zk", "text": "Yes that is the whole point of OZ\u2019s basically.", "replies": [], "depth": 1}, {"id": "efyye7u", "text": "You would move the 1031 cash into an opportunity zone fund within 180 days so that the 1031 is technically satisfied. Then the fund would invest the cash on your behalf. ", "replies": [], "depth": 1}, {"id": "efz6919", "text": "Since you need to spend money on improvements for the OZ qualifications would you also need to do an Improvement Exchange?", "replies": [{"id": "efz8vg1", "text": "You have a construction escrow, I think 30 month. ", "replies": [], "depth": 2}], "depth": 1}, {"id": "egd5gx3", "text": "Yes you can. Few different tiers to get the total tax benefits...\n1. By 1031 into a Oz, you\u2019re already deferring your capital gains on your previous asset. Fun fact, you can actually put any type of capital gains into an OZ to defer taxes (profit from stocks, bonds, selling a company etc.)\n2. You need to hold it for 7 years to get a 5% lower in your initial capital gains basis. And additional 3 (I may not be entirely right on 3 years) to have an additional 10% step down in your initial capital gains basis.\n3. The largest benefit however about OZ, is if you check the box and complete all mandatory requirements, any gains on the property you purchased in the OZ is tax deferred indefinitely.\n\nThe main problem is, many properties with existing improvements don\u2019t make a good investment. Here\u2019s why (along with the other requirements do be applicable for all tax benefits):\n1. You must acquire the property from an arms length transaction. \n2. You must double the value of the improvements (not the total cost basis, just the improvements on the land)\n3. You must double the value of the improvements within 30 months of acquiring the asset.\n4. You\u2019re required to have a \u201cfund\u201d in a form of an llc or other entity (not a reit) with at least two members.\n\nHere\u2019s a real life example that\u2019s occurring already: Some developers are working a loophole of buying properties demoing existing improvements, entitling the land (typically to multi family) start the construction and selling the property along with plans to an investor to finish the construction within 30 months.\n\nInteresting stuff really...\n\n", "replies": [], "depth": 1}]