Had a Recent Liquidity Event? Qualified Opportunity Zones Worth An Investment Look (2024)

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Dan Barnard, Relationships Officer for Financial Architects, Inc., says that with possible upcoming changes in tax laws, it’s necessary to consider all of the available options, including qualified opportunity zone investments.

This unique angle to approaching your investment portfolio is now available in Arizona, with a new office run by Barnard that can work with you on your overall financial portfolio and opportunity zone investments.

“Financial Architects, Inc. is a full-service boutique firm that gives a big-firm experience with a highly individualized approach to investing, and buying and selling stocks, taking into consideration your whole financial picture, including taxes, as a strategy to maximize your outcome,” says Barnard.

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In addition to the traditional services, you’ve come to expect from wealth management firms, Financial Architects, Inc. is also presenting an exciting opportunity zone investment opportunity that has the potential for deferment of capital gains taxes if you’ve had a recent liquidity event.

The IRS says that “taxpayers who invest in qualified opportunity zone property through a qualified opportunity fund can temporarily defer tax on the amount of eligible capital gains they invest,” defining qualified opportunity zones as “an economically distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment.”

“These areas were qualified by the 2010 census, and today some of them are extremely attractive investment areas, like Phoenix, Reno, North Carolina, Hilton Head, Utah and areas outside of Boise, with assets that have major thoroughfares and significant traffic counts on all sides,” says Louviere. “We are finding that investors are surprised these areas are available.”

“Additionally, existing building shells represent a huge value with today’s construction costs of building from the ground up,” says Louviere.

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When the concept of opportunity zones was originally introduced, there was little guidance from the IRS, and it was considered as an undefined gray area.

“Since that time, there have been multiple updates when it comes to regulations on how these assets are used by investors,” Barnard says about investments, adding that most opportunity zone funds are developer driven and expire with the project. In this fund, it is investor driven. “That means by the nature of the structure of this fund, it’s designed to last longer than ten years, like a developer-driven fund,” he says.

As more regulations around opportunity zones were created, it’s become a better choice to hold core real estate assets for tax efficiency.

“I’m bullish on the concept of using an opportunity zone fund to defer or potentially reduce capital gains taxes. It’s just a tremendous opportunity to have a Roth-like contribution using real estate,” says Louviere.

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“The true opportunity in the opportunity zone fund strategy lies in it’s an ability to get into a tax shelter that can grow for 26 years with no back end tax, no matter what it’s worth, no matter how much depreciation deductions you’ve taken,” says Kirk Walton, the founder and principal of Griffon Private Wealth Management Firm.

Walton compares it to a Roth IRA, which has unlimited tax shelter on growth.

“If you have a Roth IRA, and you hit the bare minimum timeline to cash out tax free—
and that is five years of ownership at age 59 and a half—nobody when they hit that bare minimum threshold cashes out their Roth IRA, they keep it running,” Walton says. “Conventional wisdom is to continue to defer the gains as long as possible inside the tax shelter, because it compounds on itself.”

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For the vast majority of investors, the opportunity zone fund strategy can be more ideal than a 1031 exchange, and that’s because the opportunity zone fund allows you to have unlimited upside.

“The other factor that comes into play with a 1031 is that it’s for real investment property only,” Walton says. “When we’re looking at property, what would be considered a qualified opportunity zone fund, it’s pretty much anything with a capital gain, so that could be a primary residence, it could be a second home, it could be stock, it could be a number of things.”

Who is a good candidate to invest in a fund like this?

“Number one, you’d have a desire for deferment of capital gains on a stock or real estate you sold. And a desire to generate wealth in a vehicle with a tax advantage, potentially tax-free growth for ten years up to 2047,” says Barnard. The prospectus is your ultimate resource for learning more.

How do you get started? According to the IRS, “to defer tax on an eligible capital gain, you must invest in a qualified opportunity fund in exchange for equity interest (not debt interest) within 180 days of realizing the gain.”

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Call the seasoned advisors at Financial Architects to learn if working together for your overall financial portfolio or a fund is right for you.

This content is produced in partnership with our friends at Financial Architects, Inc. You can find Dan Barnard in the Scottsdale office at dan@financialarchitects.com or by calling 602.692.6069.

Financial Architects, Inc. is an independent firm with securities offered through Cabin Securities, Inc. member FINRA, SIPC. Investment Advisory services offered through Claraphi Advisory Network LLC (“Claraphi”) www.claraphi.com, an SEC Registered Investment Adviser. Registered Branch address: 150 South Los Robles Avenue Suite 950 Pasadena, CA 91101. Registered branch phone number: (626) 844-1190 x102. Cabin Securities Office of Supervisory 6240 W. 135th St. Suite 214 Overland Park, Kansas 66223 (816) 699-1204 website: www.cabinsecurities.com. Cabin Securities, Inc. is not affiliated with Claraphi Advisory Network, LLC. Both Mr. Steinberg and Mr. Louviere are registered representatives with Cabin Securities and investment advisor representatives with Claraphi.

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