Looking for Passage Of Key Legislation
As investor interest in Qualified Opportunity Zone Funds (QOFs) continues to percolate, I believe it’s time for Congress to seriously consider the proposed Opportunity Zones Transparency, Extension, and Improvement Act (the “OZ Extension and Improvement Act”), a bipartisan bill which introduces some beneficial modifications to existing opportunity zone legislation.
With the midterm elections in the record books, I think investors and advisors will now begin turning their focus to year-end tax planning. The OZ Extension and Improvement Act, which was introduced into Congress in April 2022 and remains at the committee stage in both the House and Senate, is backed by bi-partisan support that includes Senators Cory Booker (D-NJ), Tim Scott (R-SC), Mark Warner (D-VA), Todd Young (R-IN), Chris Van Hollen (D-MD), Benjamin Cardin (D-MD) and Roy Blunt (R-MO), and Representatives Mike Kelly (R-PA), Terri Sewell (D-AL), Mike Carol (R-WV), Jefferson Van Drew (R-NJ) and Dan Kildee (D-MI). With the OZ Extension and Improvement Act, this team of cosponsors sets out to, among other things, require greater information reporting by QOFs, thereby providing more accountability for the policies and regulations that are the underlying structural components of QOFs 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.
The proposed OZ Extension and Improvement Act would also modify the current regulations by re-establishing both the 15% and 10% step-up in basis that expired at the end of 2019 and 2021, respectively. These benefits entitle investors who made their QOF investments prior the applicable expiration date to a 10% step-up in basis if they continue to hold their investments until the end of the deferral period in December 31, 2026 (this incentive is not available for investments made after December 31, 2021) and an additional 5% step up in basis if they hold their QOF investment for 7 years (this incentive is not available for investments made after December 31, 2019).
If passed, the OZ Extension and Improvement Act would re-establish the 10% step-up in basis for QOF investments that are held for at least five 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.
I can tell you, having just returned from the Schwab IMPACT 2022 conference, where roughly 2,000 advisors gathered, there were rumblings within my discussions that the passage of the OZ Extension and Improvement Act could occur by year-end.
While this is pure speculation, it would make sense, in my opinion, that the incentive to invest and drive capital into Opportunity Zones should have fresh momentum.
Belpointe PREP, LLC’s (NYSE American: “OZ”) business model 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 PREP (“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.
As 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.
Because Belpointe OZ is a publicly traded QOF, transparency is higher than 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.
A key feature that we think investors find attractive is that when purchasing Belpointe OZ Class A units in the market there are no minimum investment amounts; you 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. That 2022 deferment window narrows with each passing day.
In my opinion, another highly 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 an unfortunate 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.
Investing capital gains into a QOF, like Belpointe OZ, allows an investor to defer the tax payment on those capital gains through the earlier of tax year-end December 31, 2026, or the date on which the investor sells their investment or experiences another type of inclusion event. Plus, all income and appreciation from the time one invests capital gains into a QOF through December 31, 2047, is potentially tax-free. We spell out how this alternative can work for you in our updated white paper.
Have questions about how Belpointe PREP, LLC (NYSE American: “OZ”) can provide opportunities for investment appreciation and income and help you or your clients to defer or eliminate capital gains tax obligations?
Call or email us and we’ll take the time to answer all of your questions about Belpointe PREP, LLC (NYSE American: “OZ”) and how reinvesting capital gains into a QOF can be utilized to offset tax obligations.
You can contact us at 203-883-1944 or IR@belpointeoz.com.
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 firstname.lastname@example.org. Read the prospectus in its entirety before making an investment decision.
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