Don’t Let The Window to Defer Taxes Close
Trying to put the current investing landscape into words conjures up the famous phrase “we’ve entered the twilight zone,” a subjective statement used to describe a distinct condition between fantasy and reality. No more than a week ago life in Ukraine was moving along at a fairly normal pace, the general thought being that the Russian military buildup was more of a form of diplomatic leverage to keep Ukraine from joining NATO than anything else.
As of this writing on Wednesday night, Vladimir Putin has made good on his pledge to commence efforts to overthrow the Ukrainian government. His forces are set to surround Kyiv and put a stranglehold on the capital despite broad sanctions, collapse of the rubble and hugely vocal criticism from the global community with the exception of China, which still calls the invasion “the Russian operation”. In fact, China expressed opposition to the sanctions and called U.S. actions “immoral.”
If China plans on taking over Taiwan, they may want to take a pause, considering the “pariah” status applied to Putin and the ugly optics of this whole unpleasant scenario unfolding in real-time on every form of media. To say there is financial instability and potentially destabilizing events occurring outside of the U.S. is an understatement, and is the reason why I’m touching on these geopolitical points at a time when every one of the stock market’s major indexes is trading below their respective 200-day moving averages. Some serious technical damage has been done, in my opinion, and it will take a great deal of good news for major averages to recover the primary uptrends.
Considering this backdrop, I think one of the most comfortable positions for an investor to be in is having the option to diversify their portfolio into domestic rental properties in Class-A real estate, which is the business of Belpointe PREP (NYSE American: OZ). Let me get straight to the point. Inflation is sticky, the Fed is going to raise rates regardless of Ukraine, the stock market is enduring multiple contractions and the allure of owning foreign assets is being severely tested. Talk with your CPA and investment advisor and consider inflation-sensitive assets in essential sectors such as living space.
As for one’s tax situation, the first key tax deadline looms less than two months away and I would venture to say that thousands of investors are set to pay taxes on their realized 2021 stock market capital gains, while round-tripping unrealized gains in 2022. If this is you, you might want to talk with your CPA and investment advisor about your options for sheltering those 2021 gains, until December 31, 2026, in a Qualified Opportunity Zone Fund (QOF) as well as the possibility of seeing appreciation and income on those reinvested gains going all the way out to 2047 when the Opportunity Zone program ends.
Check it out. A $500,000 capital gain reinvested in Belpointe PREP (NYSE American: OZ) can provide you with the opportunity for growth and income while federal (and in most cases state) taxes on that original $500K are deferred until December 31, 2026. What’s more, potentially any and all of the capital gains and income derived on your original $500K may be tax-free if you hold your investment for a period of ten years from the date of purchase, and can even keep earning tax-free returns until 2047.
Let me pose some serious questions:
– Do you know the entirety of your capital gains liability for 2021?
For RIAs with client assets where this is a 2021 tax scenario in the making, the conversation about how this tax burden came about and what to do about it can be stressful. But it doesn’t have to be with a viable tax deferral strategy that can help to offset tax liabilities dollar-for-dollar. Offering a possible solution to the tax burden and preserving AUM can be accomplished by having a discussion about how a QOF can be of real value. But timing is of the utmost importance as the clock for sheltering 2021 gains is ticking.
Because of the 180-day lookback period built into the regulations that govern QOF capital gains reinvestments, investors can shelter 2021 capital gains going back to a recognition date of September 5, 2021, as of this writing. This 2021 window closes with each day that April 18 approaches and will completely close by June 28, 2022, on a rolling 180-day basis.
Let’s assume you are faced with a capital gain of $500K recognized on September 5, 2021 (or any time thereafter). Reinvest that same $500K capital gain into a QOF within 180 days of September 5, 2021 (or any recognition date occurring after September 5, 2021), and as long as you continue to hold it there will be no federal—and, in most cases, state—taxes due on that $500K until you file your 2026 tax return in April of 2027 or you sell the position beforehand, whichever occurs earlier. In addition, there may not be a tax on any of the appreciation or depreciation you receive on your QOF investment if you hold the investment for 10 years or more, up to December 31, 2047.
This 180-day lookback period to recognize and pair off dollar-for-dollar capital gains with capital gains taxes owed provides for a tax planning tool and what I believe is a compelling incentive to build a rare and unique 2021 tax shelter.
While there is still time to see how 2022 capital gains will play out, the tax hit for 2021 is a known quantity and the time to reinvest capital gains realized from the sale or exchange of capital assets—whether stocks, bonds, commodities, precious metals, businesses, real estate, patents, trademarks, collectibles, livestock, etc.—during essentially the last four months in 2021 into a QOF is running out. Reinvesting those gains into a QOF can be a strategic solution for deferring capital gains taxes while affording time for the market to run its course, and also enjoying the possibility of tax-free appreciation on capital gains invested if held for 10 years.
Belpointe PREP (NYSE American: OZ) is investing in multi-family real estate properties with income-producing potential in cities with vibrant job markets, which we believe is a stable and viable asset class in the current inflationary environment. At Belpointe PREP (NYSE American: OZ) we build and acquire Class A, full-featured, apartment properties targeting Sarasota, FL, Tampa/St. Pete, FL, Austin, TX, the Research Triangle, NC and Nashville, TN and Boise, ID.
In our view, the Fed’s stated plan to raise their key rate over the course of 2022 can be looked at as a strong catalyst for property owners whose rents may be tied to cost-of-living indexes. A tight labor market for skilled workers appears to be pushing up wages in tandem with rents, keeping a strong set of fundamentals underpinning the Class-A rental property market.
In the world of tax planning, this can be an alternative proposition. Furthermore, Class A units of OZ can be bought and sold in the open market without penalty, allowing investors to add to or trim from the amount of capital gains sheltered at their discretion. Again, under the QOF structure, reinvested capital gains may grow tax-free if held for a period of ten years or more up to December 31, 2047.
Take action and park your gains in Belpointe PREP (NYSE American: OZ) to insulate against paying capital gains taxes for this year, I suggest making it a priority to take the time to consult with your RIA, CPA, CFA and estate planners to gain full control of how to seize all the benefits of QOF investing and Belpointe PREP (NYSE American: OZ) in particular.
Have questions about how Belpointe PREP (NYSE American: OZ) can provide opportunities for investment appreciation income and help you or your clients to Defer or Eliminate Capital Gains Obligations?
Call or email us and we’ll take the time to answer all of your questions about Belpointe PREP (NYSE American: OZ) and how reinvesting capital gains in a QOF can be utilized to offset an investor’s tax obligation.
You can contact us at 203-883-1944 or IR@belpointeoz.com.
To your success,
Cody H. Laidlaw
Editor-in-Chief
Belpointe OZ
255 Glenville Road
Greenwich, CT 06831
T: (203) 883-1944
E: IR@belpointeoz.com
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 claidlaw@belpointe.com. Read the prospectus in its entirety before making an investment decision.
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