OZ Tax Benefits Rival Some Offshore Jurisdictions

For some investors, one of the biggest fears they may currently be facing is the thought of the IRS hiring some 87,000 new agents over the next 10 years, including a number of enforcement agents who will focus on noncompliance by wealthy taxpayers and large corporations. Commentary is pouring in regarding the highly divisive tax provisions of the recently passed Inflation Reduction Act, which address “improving taxpayer compliance.” After speaking with a number of accountants, I’ve come to learn they all generally share the view that the IRS is going to be targeting millionaires that get too aggressive with their deductions.

Whatever the outcome, I believe there is a good chance that audits will be forthcoming for taxpayers with offshore accounts in everyone’s favorite tax havens, like Panama, Belize, Nevis, Switzerland, Monaco, Bermuda, Jersey, the British Virgin Islands, Liechtenstein, Gibraltar, Guernsey, Anguilla, Mauritius, the Cayman Islands, Cook Islands, Cyprus, and many other locations. Each of these jurisdictions provide various degrees of tax reduction incentives, asset protection, and banking privacy. But for a U.S. citizen or resident, there is no escape from the long arm of the IRS; the location of one’s assets does not allow one to avoid federal tax obligations, and a failure to disclose foreign accounts can lead to civil and even criminal penalties.

The United States is one of only two countries (the other being the East African nation of Eritrea) that uses a citizenship-based taxation system—where a citizen or permanent resident living in U.S. will be subject to federal income tax irrespective of where in the world the income is earned. Hence, if one is trying to lower the impact of income taxes by diverting activity outside the U.S., they may very well end up paying some hefty hourly rates to advisors and other service providers to keep the IRS out from under their knickers.

Renewed audit and enforcement risks are just some of the first of what I believe may be many red flags buried in the 730-page Inflation Reduction Act, and I think that these and other tax provisions in the Act are raising the most dander and hair on the back of the neck of small-to-medium sized business owners. The prospect of getting dragged into a long-winded audit versus settling for an IRS payoff is, in my opinion, a travesty, and, to add insult to injury, to the chagrin of taxpayers, it’s the tax attorney/CPA-lobby in D.C. that may very well stand to rake in riches from Inflation Reduction Act’s expansion of the IRS and tax code.

So, let’s simplify the matter at hand. Qualified Opportunity Zone Funds (“QOFs”) are, in my view, a refreshing alternative to the way things are otherwise going, and a means to possibly look forward. Case in point, if you have sold or are thinking about selling capital assets, or even a business, into the strength of the economic cycle, you can defer all capital gains taxes on that sale out until December 31, 2026 by reinvesting those gains in a QOF.  And, at the same time, all of your future income and appreciation from those investment gains will be tax free if you hold your QOF investment for a period of ten years or more, up to December 31, 2047.

There are a couple of things going on here, especially for those heavily invested in stocks. From my perspective, it looks like the bear market rally ended last Thursday. The Fed is on the road to possibly raising the Fed Funds Rate to 4%-5% because core inflation, which includes wages, rent, transportation, medical services, recreation and energy, is hot and moving higher. And then there is food and energy on top of that.

The stock market may be providing an exit point from what could be a real and genuine contraction in P/E ratios to their 10-year averages, possibly implying another pullback of 10%-15% from current levels. The macro events around the globe appear to be starting to weigh on the Teflon U.S. stock market, and the June 16 low could easily be tested. It wouldn’t take much; some hawkish policy language from the Fed in Jackson Hole this Friday could be enough to make for a long, hot end of summer.

What will continue to work in our view is multi-family residential real estate assets that provide an opportunity to hedge against inflation, as well as the possibility of stable income, and appreciation potential. QOFs are the only investment opportunity that provides investors a way to defer capital gains realized during the past 180 days—out to December 31, 2026—and they just might be the perfect investment vehicle for an audience seeking shelter from 2022 capital gains taxes.

I believe such investors should consider reinvesting capital gains from the sale of capital assets, like stocks, real estate, a business, collectibles, etc. into a managed QOF, like Belpointe PREP, LLC (NYSE American: “OZ”), which includes tax benefits, the potential for tax-free growth and income, and is a liquid investment opportunity.

Investing into a QOF, like Belpointe PREP (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 chance not only for all accredited and non-accredited investors alike, but also for real estate investors in particular, because it provides an 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 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.

In terms of addressable markets, Belpointe PREP (NYSE American: “OZ”) is building and acquiring properties in Nashville, TN, Sarasota, FL and St. Petersburg, FL, and targeting growth markets like Austin, TX, Boise, ID and the Research Triangle, NC to grow their portfolio of Class-A multi-family properties.

There are a few very important features about Belpointe PREP that I believe differentiate it from the rest of the competition. 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.

The ability 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 unique opportunity for all investors not found in any other subset of the real estate universe.

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 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

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.

This communication, including any links embedded herein, may not be distributed in any jurisdiction where it is unlawful to do so. Nothing in this communication is or should be construed as an offer to sell or solicitation of an offer to buy Belpointe PREP’s Class A units in any jurisdiction where it is unlawful to do so.

Neither Belpointe PREP nor any of its affiliates provide investment or tax advice and do not represent in any manner that the outcomes described herein will result in any particular tax consequence. Prospective investors should consult their own investment and tax advisers concerning the U.S. federal, state and local income tax consequences, as well as any tax consequences under the laws of any other taxing jurisdiction, in relation to their personal tax circumstances, which may vary for prospective investors in different tax situations.

This communication may contain estimates, projections and other forward-looking statements, typically identified by words and phrases such as “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” or the negative of such words and other comparable terminology. However, the absence of these words does not mean that a statement is not forward-looking. Any forward-looking statements expressing an expectation or belief as to future events is expressed in good faith and believed to be reasonable at the time such forward-looking statement is made. However, these statements are not guarantees of future events and involve risks, uncertainties and other factors beyond Belpointe PREP’s control. Therefore, we caution you against relying on any of these forward-looking statements. Actual outcomes and results may differ materially from what is expressed in any forward-looking statement. Except as required by applicable law, including federal securities laws, Belpointe PREP does not intend to update any of the forward-looking statements to conform them to actual results or revised expectations.

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