December 1, 2018 at 9:56 pm #1721
Over a six-week period last summer I sold an equity mutual fund at a long-term gain of $368,000. Investing the gains in a Qualified Opportunity Fund (QOF) would allow me to defer them to a later year, with significant tax savings.
I have been trying to find a QOF in which to invest. You have to invest within 180 days from when the gains were realized, and starting right now the amount of gains I can defer is going to diminish and will be zero by mid-Jan.
Although there are a number of QOFs in the process of development, there seem to be few ready to take investments from individuals at this point. So far I have connected with two: the Emergent Communities Fund and TPP Real Estate Development Fund. Both require investors to be accredited, and the former has a $1 million minimum. I am not yet sure whether I qualify to be accredited.
Does anybody know of any additional QOFs now open to individual investors?December 2, 2018 at 12:12 pm #1723
I can’t help you identify additional QOFs but I have this comment. Unless they take the steps necessary to offer registered securities, a QOF cannot sell to anyone but an accredited investor. Given the time and expense involved, it is difficult to imagine you’ll find a QOF that has gone through the registration process. If you’re looking for other names in the hope of finding one that will accept someone who isn’t an accredited investor, you face long odds against success.December 2, 2018 at 7:31 pm #1727
Thanks so much, Kaye. I was hoping I’d find something like a mutual fund. But now I’ve learned a bit about what “accredited” means, and think I might qualify. I’m still interested in learning about other QOFs.December 8, 2018 at 5:39 am #1763
I have found several funds that have started to take in money for investment in Opportunity Zones.
For the investor to enjoy the tax advantages provided by the 2017 Tax Cuts and Jobs Act for Opportunity Zone investments, the fund must self-certify as a “Qualified Opportunity Fund”. However, the means for the fund to do this—Form 8996—is not yet available in final form. Moreover, the form is not required to be filed until the due date of the fund’s tax return. (And final regulations will not be published until 2019.)
For the investor to defer the realized capital gain invested in the fund, the TIN (taxpayer ID number) of the Qualified Opportunity Fund must be entered on Form 8949. I have not been able to find any such TIN in the fund documents I have reviewed.
Under these circumstances how can somebody investing right now be assured of the tax advantages before investing in the fund? Once invested, it may not be possible to withdraw for something like 10 years.December 8, 2018 at 12:34 pm #1765
You don’t need to be concerned about the TIN. Obtaining one would be one of the first orders of business for the fund, and they’ll obviously have to supply it to investors.
The more important issue is the reputation/track record of the persons responsible for creating and running the fund. If you’re dealing with first-rate people, they’ll be fastidious about tax compliance. If not, tax compliance may be the least of your worries, as this tax benefit will turn out to be pretty expensive if the investment doesn’t pan out. You may get some sense of this from their prospectus, but it would behoove you to do some due diligence beyond reading what they provide. At the least, Google the principal names in the prospectus and see what comes up.December 9, 2018 at 1:45 am #1766
Kaye, your slant on this—i.e. focus on checking out the people—is exactly what I needed. This is the first time I have ventured outside of the world of mutual funds. I wonder if the Opportunity Zone tax deferral benefit could in time become available via a mutual fund.
With regard to the TPP Fund, a limited partnership, what got me worried is that even though the very beginning of the Private Placement Memorandum (PPM) says one goal is to provide a vehicle to obtain the Opportunity Zone tax benefits, nothing about that is mentioned elsewhere, including the PPM’s 14-page section “Certain Income Tax Considerations”, the Limited Partnership Agreement, and the Subscription Agreement. And the PPM’s Income Tax section DOES say “the Partnership will not be operated for the purpose of generating tax deductions, losses, credits or other benefits.”December 9, 2018 at 4:57 am #1767
Post-script to previous post:
I do not know if this matters–but the TPP Fund’s website says their SEC Form D filing has not yet been finalized–although they started offering limited partnership interests in April 2018.December 9, 2018 at 11:09 am #1768
I don’t know if an opportunity fund mutual fund is a practical possibility, given the hurdles involved in registration and illiquidity of the underlying assets.
As for the question about Form D being finalized, I don’t know either. I used to do the tax work on offerings of this general type, and a little understanding of the securities law concerns rubbed off, but in that area I barely know enough to be dangerous. I note that a Form D filing has to be made no later than 15 days after the first sale, so it isn’t necessary to finalize it before beginning sales. I don’t know how long is typical for it to be finalized, or what it might indicate if the process is taking longer than usual. Bear in mind it’s possible they finalized the filing but forgot to update this page of their website. However, these forms are supposed to be available to the public through EDGAR, and I wasn’t able to pull this up, which may or may not be due to my having failed to make a proper search.December 9, 2018 at 8:27 pm #1770
Thanks, Kaye. I searched EDGAR myself, and found nothing, and I don’t have any doubts about whether I searched correctly. According to the TPP website they have already taken in more than $3 million; however, I don’t know when that happened.
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