New Inflation Reduction Act Raises Taxes and Inflation

The passage of the Inflation Reduction Act is bringing cheers from the Democrats and criticism from the Republicans. The vote was pretty much up and down party lines. There are good intentions built into the legislation, but it comes at a time when another major spending spree of hundreds of millions of dollars could well keep the inflation fire lit for longer.

As usual, influential lobbies and superPACs camped out on Capitol Hill from the onset to the final vote, doing everything in their power to protect their interests. According to one page summary put out by the Democrats “[t]here are no new taxes on families making $400,000 or less and no new taxes on small businesses – we are closing tax loopholes and enforcing the tax code.” If that’s true, and if they’re really closing tax loopholes, then how did the long-debated carried interest provision stay off the chopping block?

This appears to me to be just another case of the uber-wealthy taking care of their own and somehow getting even the most ardent opponents to remain relatively quiet on the matter. Carried interest is taxed as long-term capital gains at the maximum rate of 20% and not at the higher ordinary income tax rates. That’s quite the deal when compared to the top ordinary income tax rate, currently sitting at 37% plus an additional 3.8% on net investment income for high earners. Considering all the jumping up and down about the wealthy paying their fair share from those that have a bullseye on the hedge fund community, I think that fact that this loophole made its way through the final version of the Act takes influence peddling to a new level.

Leaving the hedge fund community unscathed, the new Act will impose an alternative minimum tax of 15% on domestic corporations with an excess of $1 billion dollars in annual adjusted income. The bill also includes a 1.0% excise tax on corporations repurchasing their own stock.

The spending package comes at the same time the Fed is continuing to reduce its balance sheet, via quantitative tightening, ramping up to a target amount of $95 billion per month by September. Republicans on the House Ways & Means Committee argue that the new act is full of “hundreds of billions of dollars in wasteful inflationary spending and won’t reduce the deficit.” While the impact on the deficit remains to be seen, I think it’s pretty well understood that the massive spending of the past two years contributed heavily to the soaring inflation we’re facing today, and now Congress wants to spend more … a lot more.

So, rather than fight inflationary headwinds, I think investors should consider turning those headwinds into tailwinds by acquiring publicly traded commercial real estate in the form of residential multi-family properties, where rents are tracking higher with inflation. Everyone I know who is renewing a lease is seeing a noticeable increase in their new monthly rate. Getting in on the landlord side of this trade makes good sense and in my opinion buying into a Qualified Opportunity Zone Fund (QOF) with its vast tax advantages makes even more sense.

Moving capital gains from stocks, real estate, the sale of a business, collectibles, etc. into a managed QOF, like Belpointe PREP, LLC (NYSE American: “OZ”), that includes tax benefits and the opportunity for tax-free growth and income, should, I think, have great appeal in the present environment among cash-rich sellers seeking a smart and potentially lucrative investment opportunity.

Investing into a QOF, like Belpointe PREP, LLC (NYSE American: “OZ”), allows an investor to defer the tax payment on invested capital gains through tax year end December 31, 2026. This is a generational opportunity for all investors, but for real estate investors in particular, it provides a legal alternative to the 1031 like-kind exchange, and the requirement to buy another physical property within 180 days. Plus, all the income and appreciation from the time one invests in a QOF until December 31, 2047 is potentially tax free. We spell this alternative out in our updated white paper. Please click on the White Paper at the bottom of this page to receive your copy.

Coming into August there are still a number of unknown risks to the economy and the market, but I think there is also some additional clarity. The labor market is reflecting a healthy hiring environment, the Fed is going to keep raising rates and those markets that support the best-paying jobs will continue to thrive. Belpointe PREP (NYSE American: “OZ”) is building and acquiring properties in Nashville, TN, Sarasota, FL and St. Petersburg, FL, and targeting markets like Austin, TX, Boise, ID and the Research Triangle, NC to grow their portfolio of Class-A multi-family properties.

While there are multiple QOFs to choose from, none are publicly listed and traded on a national securities exchange other than Belpointe PREP (NYSE American: “OZ”). And with Belpointe PREP, there is no risk of future capital calls, as spelled out in Belpointe PREP’s prospectus and SEC filings. Most other QOFs are illiquid or require early exit fees and can require investors to add additional capital to cover unexpected costs in the projects that they sponsor.

At Belpointe PREP we are fully aware that life happens and plans change. If at any time an investor in Belpointe PREP (NYSE American: “OZ”) units needs access to their funds before December 31, 2026, they can simply look to sell their stock. The chance to invest in opportunity zones—a government-created program designed to incentivize investing in some of the most essential segments of the broader real estate universe—is a generational opportunity for all investors, and for real estate investors on that provides a legal alternative to the 1031 like-kind exchange, with its requirement to buy another physical property within 180 days. We spell this alternative out in our updated white paper.

Have questions about how Belpointe PREP (NYSE American: “OZ”) can provide opportunities for investment appreciation, and income and help you or your clients to defer or eliminate capital gains tax abligations?

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.

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.

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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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