December 31, 2022 Deadline Matters
The phones in my office have been ringing more actively this past week, after I and a handful of others in the Opportunity Zone space have highlighted the potential for renewed legislative momentum with respect to the proposed Opportunity Zones Transparency, Extension, and Improvement Act (the “OZ Extension and Improvement Act”). I’m cautiously optimistic following the midterm elections, as bipartisan support for the OZ Extension and Improvement Act appears to be getting some upbeat chatter.
Year-end tax planning by advisors and investors seems to be in full swing, and, though it’s been a challenging year for the stock market, many of the investors that I’ve been speaking to have booked capital gains in a number of areas outside of the capital markets; areas where the OZ Extension and Improvement Act may bring favorable terms to the fore if Congress can pass the bill by year-end.
But if not, in my opinion, the OZ Extension and Improvement Act will be reintroduced largely in the same form in 2023, where its passage would work just as well—at least for investors, where the primary benefit, in my view, is the proposed re-establishment of a combined 15% step-up in basis, which could be retroactive, covering investments made in 2022, or possibly pushed out to include 2023 and 2024, again, depending on the timing of a vote.
The OZ Extension and Improvement Act’s team of Congressional co-sponsors sets out to, among other things, require greater information reporting by qualified opportunity funds (“QOFs”), thereby providing more accountability for the policies and regulations underlying the structural components of QOF and opportunity zone investing. In addition to expanding the information reporting requirements, the OZ Extension and Improvement Act seeks to further incentivize investors in QOFs by extending the current deferral period by two years, from December 31, 2026, to December 31, 2028.
This extension would entitle investors who made their QOF investments prior to 2021 to a 10% step-up in basis if they continue to hold their QOF investments for a period of 5 years (this incentive is not currently available for investments made after December 31, 2021) and an additional 5% step up in basis if they continue to hold their QOF investments for a period of 7 years, possibly reduced to 6 years (this incentive is not currently available for investments made after December 31, 2019).
Put another way, if passed in its current form, the OZ Extension and Improvement Act would re-establish the 10% step-up in basis for QOF investments that are held for at least 5 years prior to the end of the deferral period (as proposed, December 31, 2028), and also reduce the holding period requirement for investors to receive the additional 5% step-up in basis (for a total step-up in basis of 15%) from the current 7 years to 6 years (through the proposed December 31, 2028 deferral period).
I firmly believe that it stands to reason that a longer deferral period and revival of the step-up in basis benefits could be a game changer for those investors and advisors that believe they’ve already missed the window for a longer investment timeline and the initial tax incentives. And I also believe that the sponsors of the OZ Extension and Improvement Act would like to see it passed by year-end so as not to have to rewrite or reintroduce any of the current terms and conditions.
It just makes sense, in my opinion, for Congress to move now on this important piece of legislation for capturing a renewed step-up basis and providing a major incentive to invest in and drive capital to QOFs from capital gains realized in 2022.
What sets Belpointe PREP, LLC (NYSE: American “OZ”) apart from other QOFs? Belpointe PREP (“Belpointe OZ”) is a publicly traded QOF, and transparency is higher than in that of many privately managed QOFs. In addition, while most other QOFs have limited or restrictive redemption features, Belpointe OZ unitholders can buy and sell Class A units in the open market.
In my opinion, another notable feature of Belpointe OZ is that Class A unitholders are not at risk of receiving and being held liable for any future capital calls. Capital calls are a feature many investors may regularly face in acquiring, developing and renovating private opportunity zone properties. Liquidity, no risk of capital calls and diversification put Belpointe OZ in the class of best-qualified opportunity zone funds, in my view.
Another key feature that we believe investors find attractive is that, when purchasing Belpointe OZ’s Class A units in the market, there are no minimum investment amounts; investors can purchase as little as one Class A unit. Thus, giving investors the ability to pair off, dollar-for-dollar, realized capital gains against a liquid tax shelter, where no taxes are due from capital gains realized in 2022 and reinvested within the 180-day look-back period (as long as you continue to hold the investment) until December 31, 2026. This four-plus-year tax deferment might serve as an alternative strategy for 2022 year-end tax planning purposes. For example, if we apply the 180-day look-back period, capital gains realized as far back as late May of this year qualify for 2022 tax deferment. But that 2022 deferment window narrows with each passing day.
Belpointe OZ’s business model is focused on building and acquiring multi-family residential properties that fall into the Class-A, full-featured category, addressing markets that research shows are experiencing growth both in terms of migration trends and employment opportunities. Belpointe OZ is already committed to several investments in Nashville, Tennessee, and the state of Florida. Some of the other markets that we are looking at include Raleigh, Durham, and Charlotte, North Carolina.
For 2022, investors who have realized capital gains in the past six months, whether from the sale of stocks, real estate, a business, collectibles, planes, boats, livestock, cryptocurrencies, precious metals, an interest in a partnership, or any other variety of assets, may want to consider reinvesting those capital gains into a QOF, such as Belpointe OZ.
Cody H. Laidlaw
255 Glenville Road
Greenwich, CT 06831
T: (203) 883-1944
Disclosure: Cody H. Laidlaw is the Chief Investor Relations Officer. Cody is also an investment advisor representative with Seaside Advisory Services, Inc. (d/b/a Seaside Financial & Insurance Services), a SEC registered investment adviser offering advisory accounts and services, and holds a long position in Belpointe PREP, LLC’s Class A units.
Important Information and Qualifications
Belpointe PREP, LLC (“Belpointe PREP”) has filed a registration statement (including a prospectus) with the U.S. Securities and Exchange Commission (SEC) for the offer and sale of up to $750,000,000 of Class A units representing limited liability interests in Belpointe PREP. You should read Belpointe PREP’s most recent prospectus and the other documents that it has filed with the SEC for more complete information about Belpointe PREP and the offering
Investing in Belpointe PREP’s Class A units involves a high degree of risk, including a complete loss of investment. Prior to making an investment decision, you should carefully consider Belpointe PREP’s investment objectives and strategy, risk factors, fees and expenses and any tax consequences that may results from an investment in Belpointe PREP’s Class A units. To view Belpointe PREP’s most recent prospectus containing this and other important information visit sec.gov or belpointeoz.com. Alternatively, you may request Belpointe PREP send you the prospectus by calling (203) 883-1944 or emailing email@example.com. Read the prospectus in its entirety before making an investment decision.
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