Caliber is excited to be on the forefront of a new opportunity to help individual investors shelter capital gains tax and receive tax free growth through our newest investment vehicle – the Caliber Tax Advantaged Opportunity Zone Fund, LP. In 2017, federal legislation was passed to create “opportunity zones” aimed at encouraging private capital to be invested in economically distressed areas in exchange for favorable tax treatment. While some states did not take full advantage of this legislation, the zones created in Arizona will be very advantageous for investors.
How it Works
If a project falls in a designated Opportunity Zone, and is either a ground up development or a dollar for dollar renovation, investors are eligible to receive preferential tax treatment. These investments are aimed at benefiting individuals who have triggered a large capital gain on the sale of a stock, property, or business.
As an investor, you can roll as much or as little of your gain into a qualified Opportunity Zone Fund and defer the capital gains tax that was triggered. The fund is a 10 -year term with a 10% increase in basis in year 5 and an additional 5% increase in basis in year 7. As an example, on a $1,000,000 capital gain, only $850,000 thousand of that is now subject to taxation. The tax is due prior to December 31, 2026 on the original gain triggered. Along with the step up in basis on the capital gain, all growth throughout the life of the investment is tax free if the 10-year term is met.
Why This Works for Caliber – and You.
In addition to giving our clients a new investment vehicle that provides significant tax advantages, Caliber has not had to change its business model to structure this offering. The are Opportunity Zones throughout Arizona, with notable locations in downtown Mesa, Scottsdale, Tempe and Phoenix – areas where our team currently invests.
For those of you that have been following our acquisitions, our retail play in downtown Mesa as well as the GC Square Apartments in Phoenix are both in designated Opportunity Zones alongside other projects in our pipeline. If you look at the current assets owned by the Caliber Diversified Opportunity Fund II LP, this new Opportunity Zone offering should mirror the projects, likely with more development and less hospitality.
Comparing Opportunity Zones to a 1031 Exchange
While one can see certain similarities between this offering and a 1031 exchange, we believe this to be more passive and flexible option for individuals looking to shield their gain on the sale of a property.
Generally, a 1031 exchange requires all basis and gain to be rolled into the next opportunity for full tax deferment. However, while in an Opportunity Zone fund an investor can roll their gain, or even just a portion of their gain, and get their basis back, allowing them to have cash on hand or to put to work in another opportunity.
Furthermore, an investor does not have to seek out deals to roll into as Caliber will already have a portfolio of assets purchased off market – making things simpler and more passive for the investor.
An investment in the Caliber Tax Advantaged Opportunity Zone Fund, LP is one of the best capital gain tax reduction programs of a generation.
Post by Conor Donohue
Caliber Associate Vice President
To learn more about the Caliber Tax Advantaged Opportunity Fund, LP feel free to reach out me directly at [email protected]