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Qualified Opportunity Zones: A capital gains tax deferral strategy

by AOG Wealth Management

Included in the Tax Cuts and Jobs Act is a new Opportunity Zone incentive designed to encourage investments in low-income communities and businesses. The new tax code will allow investors to redeploy realized capital gains from appreciated securities into projects or companies based in low-income areas allowing investors to reduce part of the tax obligation. More importantly, if investments are held for the adequate period (10+ Years), all post acquisition gains are eliminated for tax purposes. In contrast to historical incentives like the Enterprise Zones and New Market Tax credits which also aimed to attract capital flows to low-income communities, the Opportunity Zones program proposes far fewer restrictions on the amount to be invested, the limit to tax reductions, the time proceeds can compound tax-free and the types of investments that are to be made.  

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Neither AOG Wealth Management can not guarantee the income projections outlined in the tax analysis and any references to growth from gains or assumed income are purely hypothetical in nature and do not reflect guaranteed results. There are a number of uncertainties related to Opportunity Zones and Opportunity Funds that have not yet been determined and are subject to change based on pending guidance that is expected to be issued by the US Department of the Treasury regarding the Tax Cuts and the Jobs Act of 2017 including the types of capital gains that can be rolled into an Opportunity Fund, how much times they will have to deploy capital and the tax treatment of pass-through partnerships.

Our analysis is based on various aspects of the Opportunity Zone Program including positions that we believe to be reasonable given the statute as currently written and prior Treasury and IRS precedent. As a result, there are no guarantees that the analysis presented is correct until such guidance and regulation is provided on Opportunity Zone programs. Therefore, each investor should consult with their own personal tax advisor prior to making any investment in an Opportunity Zone Program or Opportunity Fund. AOG Wealth Management, Inc. does not provide tax or legal advice.  The opinions and views expressed here are for informational purposes only.  Please consult with your tax and/or legal advisor for such guidance. 

This material is neither an offer to sell, nor a solicitation to buy a security, which can be made only by the Memorandum and sold only by broker/dealers authorized to do so. All potential Investors must read the Memorandum, and no person may invest without acknowledging receipt and complete review of the Memorandum. These securities have not been registered under the Securities Act of 1933 and are only made available to individual who meet certain minimum requirements as an “accredited investor” under SEC Rule 501(a).  Investors that do not meet these minimum standards are not eligible to participate in Regulation D offerings. Model Assumptions: Investment value assumed to grow at a simple 5% growth rate based on initial principal. Income derived from investment is modeled to commence in year 3 and to be maintained at a 5% rate based on value in year 3. Income taxes due are assumed to be based on the high depreciation costs associated with QOF property investments.

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