Qualified Opportunity Zone Alternative for a Failed 1031 Exchange

If your 1031 exchange fails, you could explore a quality opportunity zone investment to defer tax recognition until 12-26-2026 (with 10% potentially forgiven).

A Qualified Opportunity Zone is not as good as 1031 exchange because the deferral isn’t indefinite. However, it can be a good choice if your exchange fails and you have no other options.

Questions to Ask

• How much debt did they have?

• How low was their Current adjusted basis?

If you don’t have MOB (MTG over Basis), then QOZ fund may work because they must reinvest the amount of the gain (which can exceed the amount of proceeds).

Contact CPEC1031

Contact CPEC1031, LLC today to learn more about 1031 exchanges and qualified opportunity zones. Our qualified intermediaries have two decades of experience facilitating exchanges of real property. Contact us today at our downtown Minneapolis office to get started!

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2020 Copyright Jeffrey R. Peterson All Rights Reserved

Video - Qualified Opportunity Zones vs. 1031 Exchanges

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved

Opportunity Zone Glossary of Terms

Opportunity zones are new tax incentives created by the Tax Cuts & Jobs Act. But since they are so new, many people are still wrapping their heads around them. In this article, we are going to define a few terms and acronyms that relate to opportunity zones.

QOZ – Qualified Opportunity Zone

A qualified opportunity zone is a designated area in which business must be conducted for the opportunity zone tax benefits to apply.

QOF – Qualified Opportunity Fund

A qualified opportunity fund is a partnership, C corporation, or S corporation in which a taxpayer can invest in and defer eligible gain on the sale of property.

QOZP – Qualified Opportunity Zone Property

A qualified opportunity zone property can be a qualified opportunity zone business property (QOZB) or an interest in a subsidiary that conducts qualified opportunity zone business.

QOZB – Qualified Opportunity Zone Business

A qualified opportunity zone business is a subsidiary that conducts qualified opportunity zone business and must meet the definition of a QOZB in order to do so.

Defer Your Taxes with a Like-Kind Exchange

When you’re embarking on a 1031 exchange, it’s important to have a qualified intermediary by your side to help facilitate the transaction. Our intermediaries have twenty years of experience that we can put to work for you. Reach out to our qualified intermediaries now to learn about how a like-kind exchange can save you money on capital gains taxes. Our main office is located in downtown Minneapolis (in the US Bank building) and we provide exchange services throughout the country.

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved

Why 1031 Exchanges are Better than Qualified Opportunity Zones

Qualified opportunity zones are a relatively new option for investors to defer their capital gains taxes by reinvesting their net proceeds from a sale into a qualified opportunity fund. These exist as an alternative to 1031 exchanges, but opportunity zones are not always a better option. In this article, we are going to explain why 1031 exchanges are a better tax-deferral option than qualified opportunity zones.

What is a Qualified Opportunity Zone?

A qualified opportunity zone allows investors to defer their capital gains taxes on the sale of property by reinvesting their capital into qualified opportunity zones. However, these taxes will eventually come due on December 31, 2026.

Benefits of a 1031 Exchange over a Qualified Opportunity Zone

A 1031 exchange is similar to a qualified opportunity zone in that they both offer tax-deferral. However, 1031 exchanges are different in some key ways that set them apart from opportunity zones. Unlike a qualified opportunity zone, a 1031 exchange has no set expiration date when your capital gains taxes come due. With a 1031, your deferred taxes are due when you sell your replacement property. However, you can defer those taxes once again if you set up your sale as a 1031 exchange. With this strategy you can effectively continue deferring your taxes until you die.

Set Up Your 1031 Exchange

Setting up your 1031 exchange is easy when you work with a qualified intermediary. At CPEC1031, our intermediaries have more than two decades of experience facilitating exchanges of real estate. We can help you through the entire exchange process – answering all of your questions and preparing all of your required documents along the way. Contact us today to learn more about the exchange process and whether your property qualifies.

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved

1031 Exchanges vs. Qualified Opportunity Zones

Many people are excited about the new qualified opportunity zones. Congress created this tax provision to incentivize investors to move their capital into areas that are economically challenged. The state governors have designated census tracts, geographic areas within their state, that they want to drive capital to. These are called the qualified opportunity zones.

Benefits of Qualified Opportunity Zones

You can take your gains from the sale of a business, stocks, real estate, etc. and reinvest those profits through a qualified opportunity fund and defer the recognition of the gain until December 31st, 2026. But you will eventually recognize the gain on December 31st, 2026.

There is an incentive to do this because if you hold the investment for 5 years you have 10% of your gains forgiven, and if you hold the investment for 7 years you have another 5% of your gains forgiven. But come December 31st, 2026, phantom income may be taxed. You may have to pay the piper for these deferred gains but you may not have the liquidity to do so. This is going to create some potential problems in 2026.

1031 Exchanges

For real estate investors the better alternative may still be to use the 1031 provision, because under 1031, the gain is perpetually deferred. There is no paying the piper in 2026 under 1031. For people that are selling businesses, stocks, and other assets that cannot be exchanged under 1031, the new qualified opportunity zone is an awesome tax planning opportunity. For the traditional real estate investors, the old tried-and-true 1031 is still perhaps the more advantageous way to go.

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved