Ep. 153 | The Power of Qualified Opportunity Zone Funds
Download MP3Hey, everybody, and welcome back to the teaching tax flow podcast today episode a 153. We are gonna dive into those sometimes misunderstood qualified opportunity zone funds. But before you do that, as always, let's take a brief moment and thank our episode sponsor.
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John Tripolsky:Hey, everybody, and welcome back to the teaching tax flow podcast. Today, I'm gonna say it because Chris has said it usually time and time again, I should say. We have a topic that we've mentioned very, very briefly, multiple times throughout the 100 and, what, 150, 160 some episodes that we're up to, and we've never actually defined what this is nor have we ever gone really into any detail on what it is, how to take advantage of it, how to not take advantage of it, specific things, and kind of doing a fence around this thing. So we're gonna talk around the topic. I'm not gonna tell you what it is because as I always like to say, you can read it in the title.
John Tripolsky:Read it in the show notes. Don't be lazy. It's everywhere. You don't need to hear it again. Chris McCarroll, welcome back to your own show, man, and you can introduce our guest as always.
John Tripolsky:You find these great people to join us, and it makes me feel really dumb because I'm always the dumbest guy in the room when we talk about this stuff. But then you bring a guest in, and it really knocks me down a peg, and I'm okay with that.
Chris Picciurro, CPA:Should say John, it's great to be back. I'm very excited about our special guest this on this week's episode. I had a phone a friend refer introduce me to this guest, so I can't take full credit for this. However, John, you I'm still impressed with your mentioning of depreciation recapture a few weeks ago. I'm I'm floored that you even have that terminology in your personal dictionary, so I'm pretty proud of you still.
John Tripolsky:We know. Sometimes being a marketing guy, there's not a whole lot of extra space up here in the dome, but the little room that there is sometimes, you know, I I can extrapolate something. So and I, you know, I gotta give you credit for it. I learned it from you at some point in the twenty some odd years.
Chris Picciurro, CPA:So Or editing all these podcasts, maybe.
John Tripolsky:Or that. I'm tired of hearing your voice, man. This is why I love guests. There was I hear less
Chris Picciurro, CPA:Oh, we're excited. We're excited about our guests today. And and one of the things we have to understand, and then we're and then we're gonna dive into it, one of the three laws of teaching tax law, one of our three laws of tax planning that the tax agencies are our involuntary business partner, and tax laws are written to encourage and discourage certain economic, social, whatever behavior. We also know that tax free income and growth is a very powerful tool. A lot of times when people think about tax planning and strategy, they're thinking about, what could I do to reduce my tax today?
Chris Picciurro, CPA:But there are some strategies that not only could potentially defer your tax from today, red diagnosis, but give you tax free income and growth, and that's very, very powerful. One of those strategies that is a hybrid strategy, so hits on multiple different tax benefits or diagnoses, are qualified opportunity zone funds. And we're gonna talk about that because one of the things I see in the private CPA practice and in our teaching tax law community is that there's a misconception that if you purchase a piece of real estate that happens to be in an opportunity zone, you get some type of tax benefit, and that's not necessarily the case. So I'm excited. We're gonna welcome Jessica Currenti from Capital Square.
Chris Picciurro, CPA:Jessica, welcome to our podcast, and thank you so much for joining us.
Jessica Correnti:Thanks so much for having me. I'm honored for the opportunity to speak with you both. I'm really impressed with the other sessions that you've had. I took some time to listen, so I'm excited to to be on here today. Thank you.
John Tripolsky:We're excited that you showed up if you've listened to the other ones. So good congratulations to you.
Jessica Correnti:Sure. I I had a window free up today.
John Tripolsky:There you go.
Chris Picciurro, CPA:We we appreciate it. K. Before we jump in, can you tell us a little bit about yourself and how you found your way into, finances, the Capital Square? We've you know, we know that, I think you are in the city of brotherly love right now. But how did you find your way there?
Jessica Correnti:Sure. The quick version is I started with a printed out resume that I handed to the front desk at Morgan Stanley office in New York and asked for a job. Fortunately, whatever they read or however I put it was good enough for them to invite me to come in and start working at Morgan Stanley, switched over to the sponsor side. The private real estate, private equity people always caught my attention and wanted to be a part of something where I could grow in my career, and I thought that was a great space to be in. Fast forward about thirteen years, I'm head of distribution national accounts at Capital Square, helping all advisers across the nation understand how powerful these TATS advantaged real estate solutions can can really be, especially opportunity zones.
Chris Picciurro, CPA:Gotcha. So, yeah, there are very talk about that certain industries do have tax favoritism, in the tax code. Real estate's one of them. Opportunity zone funds are part of that that tax advantage. So that's cool.
Chris Picciurro, CPA:That is really cool. And, did you did you grow up in the Philadelphia area, or did you migrate there?
Jessica Correnti:Grew up in New York, and then I broke the cardinal rule, broke my parents' hearts, and moved to New Jersey. So, you know, we're out here now, Philadelphia Eagles fans. The Jets are near and dear to my father's heart, but we'll be ruining Super Bowls over here. How are you guys doing?
Chris Picciurro, CPA:Yes. We're good. No. I understand. I grew up in Detroit.
Chris Picciurro, CPA:I've been in Nashville with my family for about a little over nine years and became lions free many, many years ago when Barry Sanders retired. So when we moved here, our kids were so young. They're 16, 15, and 12 now. We adopted the titans, and they're just about as bad as they are at the time of this recording. So it was pretty, there's a lot of room on that bandwagon for for anyone that wanted to be a titan span.
Chris Picciurro, CPA:We've ridden a pretty good ride. They had a good run for a while, but, all my other teams I went to Michigan State. I'm a big Detroit tiger fan. Like, those teams are are still, still a part of me. And I know John John, you know, he's not a he understands hockey, pretty well, and I know he's a big Red Wing fan.
John Tripolsky:Yeah. You know what? It basically takes a specific person, as my friends say, to voluntarily take a puck to the head being an ice hockey goalie for sixteen years. So maybe that's why my personality is a little off sometimes, Chris. I don't know.
John Tripolsky:We'll figure it out.
Chris Picciurro, CPA:Well, you know what's not off? The tax benefits are qualified opportunity zone funds. And and the cool thing with
John Tripolsky:That is the best way, though, that you've ever reeled a topic back on schedule, sir. That was incredible. Well There you go.
Chris Picciurro, CPA:Hey. The that it ties in. So cool with opportunity zone funds. I know they came about during the Tax Cuts and Jobs Act of 2017. And for the purposes of this conversation, and I actually am stealing this from Jessica, I learned in our when we chatted before, we're gonna call that o z one point o.
Chris Picciurro, CPA:And then o b three. Oh, John. I'm so proud of you that you put those, yeah, those acronym jingle, and, John created a little sound bite for any time we use a tax acronym like OB three, and it create a tax, you know, or or opportunity zone fund two point o. And let's kinda talk through from a 30,000 foot view just the tax benefits of opportunity zone funds, and then maybe jump in at one point o versus two point o.
Jessica Correnti:Sure. And one note prior, if you have a tax acronym jingle, you could be able to sell that to any wholesaler or CPA or adviser out there. That's that's the moneymaker opportunity.
John Tripolsky:We're gonna Chris being in Nashville, we're gonna catch him on the streets one day, and he'll, like, sing a little jingle for us.
Chris Picciurro, CPA:Oh, you don't want that. No.
John Tripolsky:I'll get out of ukulele, and Chris will start singing. It'll it'll be a hit amongst nobody. It'll be fantastic.
Jessica Correnti:But back to opportunity zones and how they can help an investor. The interesting thing about opportunity zones is any capital gain can be worked with an opportunity zone opportunity. It could be a capital gain from stocks and bonds, how you might typically think. It can be a capital gain from the sale of real estate, but it'd also be a capital gain from the sale of a business, sale of art, crypto or Bitcoin, and it can be a short term or long term capital gain. So if you have literally any scenario where there's any capital gain, you might have an opportunity to work with your advisor for an opportunity zone offering.
Jessica Correnti:In opportunity zones one point zero, so speaking of the people today, because there's no reason to speak of the past, today you have the ability to invest that capital gain in a qualified fund and defer your tax due on that gain until the tax year for 2026, so payable about April 2027. In the meantime, your investment in that qualified fund can grow tax free for ten years at a minimum. So it's a very powerful tool to get tax free growth and defer taxes for a little while.
Chris Picciurro, CPA:And and and, Jessica, you made a great point. A lot of times people are very hung up on ten thirty one exchanges, and we are advocates of ten thirty one. I've used ten thirty one in my personal life. However, it's very restrictive. And the cool thing about opportunity zone fund investments is that you nailed it.
Chris Picciurro, CPA:It could just be your capital gain. It could be a portion of your capital gain. Right? It could be the cap any capital gain, and you don't have to use intermediary. So a lot of times, these capital gains are actually straddling straddling a year.
Chris Picciurro, CPA:And I've had several situations in our private CPA practice where someone may have had a capital gain, a large gain, let's say, December 20, and we're looking at potentially making a tax extension payment. Most of our clients do our tax extensions in April 15, and we're saying, okay. You're gonna owe x amount of dollars. Oh, I wish I could have done something. You still can.
Chris Picciurro, CPA:What are some of the rules as far as how long do you have from that time you have your capital gain to to deploy that into an opportunity zone fund?
Jessica Correnti:You have a hundred and eighty days to deploy. And to your point with ten thirty ones, there is no restrictive ID window or anything like that with the qualified opportunity zone. I find often, and maybe this is a similar example to what you're giving, people's exchanges will not work out. And they're at day 47. Ugh.
Jessica Correnti:What do we do? We have to pay the tax. No. You don't. Use a qualified opportunity zone fund.
Jessica Correnti:Right.
Chris Picciurro, CPA:Absolutely. So it's it's a remedy. And a lot of times, it allows them if they if they started at a a ten thirty one, they opened it they opened it up with a QI, they they cancel it. They're surprised to realize, wait. I might have $500,000 in my pocket, but my capital gain was really only 300,000.
Chris Picciurro, CPA:I I can keep 200 in my pocket and deploy the 300. So I I to me, the ultimate flexibility here, in in so fact that you can, you know,
John Tripolsky:all are, you know, all are
Chris Picciurro, CPA:part of your gain. And then I believe in a from I I I shouldn't be, trying to remember this on a on a live, feed or a live recording, but I'm pretty certain that it you get the hundred and eighty days from the time you're aware of the gain. So for instance, let's say I am a partner in a partnership, and I own a sliver in an apartment building. That apartment building might have gotten sold, and I may not have even known because maybe there's a bunch of apartment buildings. Chances are I might have an idea.
Chris Picciurro, CPA:I actually get the one hundred and eighty days from the time I get my k one or in some so sometimes it could be beyond a hundred and eighty days into the tax year is my point.
Jessica Correnti:Absolutely. So for the tax due date of April 27, if you're a partnership, you might have a delay you know, an extended period of time where you'll be paying that tax bill.
Chris Picciurro, CPA:Yeah. So that is that so there's a lot of flexibility on OZ Fund one point o. And and, again, and then if you if you keep it for ten years, then you could get some tax free or tax, yeah, tax free growth.
Jessica Correnti:Tax free growth. Yep.
Chris Picciurro, CPA:Wow. So anything else on tax pro or tax? OZ one point o or we can call it OZ OG.
Jessica Correnti:OZ OG. OG. I love that.
John Tripolsky:Now we need like a rap jingle going on there.
Jessica Correnti:It helps with all the numbers and yeah. OG OZ one point o. So let's the very top number one tax incentive is the tax free growth, of course, over a ten year period. I would argue more than the deferral into 2027 that the next largest benefit of the one point o program is the potential to eliminate a portion of what you're going to owe in 2027 through the fair market value provision in the tax code for opportunity zones. Simple way to put it, you are allowed to recognize for your tax purposes, the fair market value of the investment as of 12/31/2026, or the amount of your gain less your basis.
Jessica Correnti:So if you have a fund or you're invested in something where they provide a new value and the value is less than your gain, You're now paying even less in your taxes come 2027.
Chris Picciurro, CPA:That's a great point because and that's a fear of many people thinking about a qualified opportunity zone fund. Man, I've got a, you know, $50,000 gain, but I really only have, for lack of a better term, $40,000 of equity or $40,000 of fair market value. I pay tax on too much. And, ultimately, that's I think it's very fair. No pun intended.
Chris Picciurro, CPA:So that's a great benefit. And that look that that snapshot's 12/31/2026. Correct? That that's when that fair market value would be assessed.
Jessica Correnti:Exactly. So it'll be a a whatever the fair market value is as of that date. Correct.
Chris Picciurro, CPA:Awesome. So if
Jessica Correnti:you have a value that's struck in November 2026, as long as it doesn't change
John Tripolsky:Mhmm.
Jessica Correnti:By the end of the year, you're good.
Chris Picciurro, CPA:Wow. So I'm gonna move on to to to OZ two point o. Maybe we'll call it OZ senior, and we got OZ junior, but I think
John Tripolsky:I like the OG one.
Chris Picciurro, CPA:Yeah. We're going OG. We're gonna go OG in two point o. So for two point o, doesn't come into play, you know, until 2027. Gains in 01/01/2027 or into the future.
Chris Picciurro, CPA:But what are some of the things that, the one big beautiful bill stated with with with opportunity zone funds because they were gonna go they're gonna be gone, basically, if it if they weren't put into the the act.
Jessica Correnti:Yeah. And and frankly, a lot of people I've been speaking to who are on the adviser side of the business didn't bother to learn about opportunity zones because they were not permanent. So I'd say that the the what we should be celebrating the most with two point zero and Obi three is the fact that opportunity zones are now permanent, which really shouldn't be a surprise. It's been the arguably the most effective piece of tax legislation in the history of our nation for both the tax benefit and the impact in communities?
Chris Picciurro, CPA:I could tell you the impact in communities are is I mean, you know, in Nashville, there's an area called The Gulch that used to be you know, when we moved here ten years ago, was, quote, unquote, an up and coming area, and it's beautiful. There's areas when we went to Atlanta for my son's baseball tournament, Buckhead. There are areas that were opportunities on funds that look great now. So, you know, I feel like the it has it has helped with economic development of certain areas, job creation, and all that stuff. So so making it permanent does give it a sense of, not just permanency, legitimacy as far as this is a strategy that we can use indefinitely and should be considered.
Chris Picciurro, CPA:Yeah.
Jessica Correnti:Just at, Capital Square, we've in the projects that we've done, we have seen over a $190,000,000 of GDP created just from our projects in Opportunity Zones. So we love it from both the impact and from the benefit side. So I can definitely share some of the benefits that OZ two point o will have. You know, again, this is really looking and planning for two years ahead. This is not something you can act on today.
Jessica Correnti:One point o is where you're acting today.
Chris Picciurro, CPA:Right.
Jessica Correnti:For two point o, you're still gonna get that ten year of tax free growth benefit if you hold it for those ten years. What you get in two point zero is a five year deferral on your tax for your capital gain. So you're looking at a 10% increase in basis for a typical OZ project or a 30% increase if you're at a rural opportunity zone fund, which a lot of speculation about what rural will be defined as. We'll find out probably towards the end of the year.
Chris Picciurro, CPA:Gotcha. Yeah. And and that's something that was it was my understanding, and and correct me if I'm wrong, but when they identified opportunity zones for the TCJA or OG or one point o, a lot of that was put on the states or the governors, and a lot of that, they went back to the 2010 census and identified areas that you wouldn't think were, quote, unquote, needing a redevelopment. So it'll be interesting to see the does what is designated as an opportunity zone and what is a rural opportunity zone. You know?
Chris Picciurro, CPA:Or it'll just be really fun to see. As a tax professional, I I love seeing that kinda that kind of stuff.
Jessica Correnti:And I think it will be interesting to see spots or, like, outside of just Capitol Square come up with creative ways to put money efficiently to work. You know, you can't put a apartment building in the middle of a cornfield. Right? You need to find something, you know, be a little bit more diligent about what you're investing in for a two point o.
Chris Picciurro, CPA:And not not talking about any specific funds or anything like that, but what are some of the what activities you're seeing in opportunity zone funds? Obviously, real estate's big. What kind of what type of real estate or what what what type of activities are you seeing that in your experience?
Jessica Correnti:I've seen a lot of development of multifamily, some hospitality. Hospitality has been good because the the zones, right, are typically where they're trying to drive revenue. So you'll think of tourism. Multifamily, of course, is housing shortage everywhere. Any person you ask in America will tell you.
Jessica Correnti:We're seeing businesses. You're able to invest in businesses for qualified opportunity zones. So you see some gold and things like that. It really runs the gamut. Some storage.
Jessica Correnti:Yeah.
Chris Picciurro, CPA:Wow. And the yeah. I mean, the outlook is really good on this. Right? Because it because it's you know?
Chris Picciurro, CPA:But we're gonna I think we gotta focus now if you're listening to this and and in one point o. And there's that's that's there's still opportunity, no pun intended there, because even in you know, let's say you were to have a capital gain in November 2025. To be able to defer your tax for almost a year and a half plus the other step up in basis benefit you you explained gives you an extra year and a half to plan. You know? So that's that's another, that's another factor also.
Chris Picciurro, CPA:So
Jessica Correnti:Some capital gains you can time, but some you can't. So what do you do today? Are you gonna pay all your money to Uncle Sam, or are you gonna find a solution? And one point o is still a very viable solution. And
Chris Picciurro, CPA:I have one question, you know, kind of a final question on that 10 rule. With can you explain that clock? In other words, does the ten year start on the day of the capital gain, the day of the day of the capital gain, a day of the day of the investment, the first tax year of the investment, what how does how does that work?
Jessica Correnti:So when you're investing in a qualified opportunity zone fund, the fund has to hold the qualified investments for ten years from the last dollar invested.
Chris Picciurro, CPA:Okay. Gotcha. Gotcha. So so there's some advantages of kinda being early into a fund. There's some advantages to being kinda at the tail end of it, depending on where you're at.
Chris Picciurro, CPA:Awesome. Anything else that you think I might have missed on? I'm I'm looking at my notes, and and and one thing that I you know, just a thought as far as from a bigger picture with OB three, you know, we we thought there was potential that capital the capital gains rate might go back up and it's staying lower, but the fact that you have short term capital gains eligible for o z funds is very attractive because a short term gain could be a pretty high tax.
Jessica Correnti:Yes. And if you think about what has happened in the market over the last year, especially or even in just the crypto market in the last year, maybe you have Nvidia positions, this might be a really strong opportunity to derisk yourself a bit and diversify.
Chris Picciurro, CPA:That's a great point.
Ad Read:Well, I we appreciate it. If someone has to get
Chris Picciurro, CPA:or want someone wants to get ahold of you, and what's the best way for them to reach you?
Jessica Correnti:Best email for me is sales@capitalsq.com. Otherwise, I'm on LinkedIn and always out and about at these different conferences and events, so thank you so much.
Chris Picciurro, CPA:Well, thank you. We appreciate it. This has been amazing. I have been working in OZ funds for many years, and I actually I learned a few things today, and, I know our listeners are gonna be very happy.
Jessica Correnti:Great. And, Chris, you get another a fan.
John Tripolsky:Chris, you get another point on the board for another good guest. Okay. You haven't failed yet. So, you know, we're we're doing good here. But this is I mean, so I know we talked about this, and, you know, I'll wrap this up really quick.
John Tripolsky:But as far as for this topic, right, I think now after this conversation, people have a pretty good grasp of where they stand right now, what these are. Is is there anything specific, Jessica, that you may have if they have specific questions on this stuff? I mean, obviously, they can reach out to you. They can connect with you. But is there are there any resources that you guys have maybe online or a newsletter or anything like that as well that somebody could get, you know, kind of an ongoing support updates with this stuff?
Jessica Correnti:Thousand percent. If you went to capitalsquare.com, you'd be able to sign up for the newsletters and our equity updates. You'll be able to go to our Opportunity Zone Learning Center where you'll find all of this information I've provided, some walk through brochures, videos, and of course, contact information with the other sales team members at Capital Square.
John Tripolsky:Awesome. Perfect. Perfect. Well, as Chris mentioned, thanks, thanks for joining us. Thanks for sticking it out with us.
John Tripolsky:And, obviously, thank you for showing up because if like I said earlier, if you've listened to our stuff, we didn't scare you away, so you must have a have a strong personality kinda like us.
Jessica Correnti:I appreciate the opportunity. Thanks so much, guys.
John Tripolsky:Awesome, Jessica. And Chris, I guess I'll see you again next week. Same time. We'll do it again. Sounds good.
John Tripolsky:Alright, everybody. Well, thank you for joining us here on the teaching tax flow podcast. We'll see you again next week. Same day of the week, different date, completely different topic. Have a good week, everybody.
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