Opportunity Zone Basics, Timelines and FAQs

Opportunity Zone Origins

A bipartisan federal regulation created by the Tax Cuts and Jobs Act of 2017, Opportunity Zones enable investors to defer, reduce and eliminate capital gain taxes while making long-term investments. Investors can only invest capital gains in Opportunity Zone funds.

How Opportunity Tax Benefits Work

1. Realize and Invest Capital Gains

Investors have 180 days after realizing capital gains to invest some or all of their gains in an Opportunity Zone fund. Short or long-term capital gains, including gains from stock or real estate, can be invested. Capital gains through a partnership have a longer time horizon to invest.

2. Defer Taxes

Defer taxes on the original capital gains invested in an OZ fund until the end of 2026. Investing tax deferred dollars increases the power of investor capital.

3. Reduce Taxes

If the capital gains are invested by 2021, the deferred taxes owed in 2026 are reduced by 10%.

4. Eliminate Taxes

After 10 years of being invested, all new capital gains made within the opportunity zone investment can be realized tax free. That’s 100% forgiveness of taxes for gains made in the OZ, resulting in a large boost to returns.

Connected

Four Points has unmatched community relationships and knowledge, ensuring the best diligence and investments.

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Regional Expertise

Colorado

Four Points is poised to be the leading Opportunity Zone fund in our fast growing state with our geographical focus.

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Large Population Growth

Capital

Activating investments and investors supporting a strategy of additive investments with strong returns.

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Private Equity Real Estate

Angel Investing

Four Points created and manages West Slope Angels.

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Deal Sourcing

OZ Fund

Four Points manages a nationally recognized Opportunity Zone Fund focused on Rural Colorado.

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How it works

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1. Realize and Invest Cap Gains

Investors have 180 days after realizing capital gains to invest it in an Opportunity Zone fund. Both the gain and the associated tax are invested in to the fund. Capital gains of any kind, including gains from stock or real estate, can be invested. Unlike 1031 exchanges, only gains are invested, allowing investors to extract their original basis. If the capital gain came from a partnership, the investor has until the end of the calendar year and 180 days into the following year to invest.

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2. Defer Taxes

By investing their capital gains, investors get to defer their capital gain taxes realized today until 2026. This enables the investment of taxes that would have otherwise been paid to the government.

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3. Reduce Taxes

If the capital gains are left in an Opportunity Zone fund for 5 years, a 10% step up in basis is applied (tooltip on step up in basis: a step-up in basis readjusts the value of an appreciated asset, providing a new cost-basis and lowering the tax liability), which equates to a 10% reduction in taxes. After the capital gains are invested for 7 years, an additional 5% step up is basis is applied, totalling in a 15% basis step up. With 2026 being the year tax is owed, 2019 is the last year to be invested for 7 years in an Opportunity Zone fund and receive a 15% basis step up. 2021 is the last year to receive a 10% basis step up.

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4. Eliminate Taxes

After 10 years of being invested, all appreciation made within the opportunity zone investment can be realized tax free. That’s 100% forgiveness of taxes for gains made in the OZ, resulting in a large boost (projected around 30%) to returns.

All Four Points funds have a 10 year hold requirement, which realizes all Opportunity Zone tax benefits.

Opportunity Zone Resources

When viewing the map, make sure to zoom in to see all of the Opportunity Zones. For instance, it's hard to see that Craig is an Opportunity Zone without zooming in. It's also hard to see that most of the town of Leadville is not in an Opportunity Zone without zooming in as the rest of the county is an Opportunity Zone.

Truly a wealth of information.

Four Points FAQs

How were Opportunity Zones created?

The Opportunity Zones provision is based on the bipartisan Investing in Opportunity Act, which was championed by Senators Tim Scott (R-SC) and Cory Booker (D-NJ) and Representatives Pat Tiberi (R-OH) and Ron Kind (D-WI), who led a regionally and politically diverse coalition of nearly 100 congressional cosponsors. Once the new tax code was passed, it was left up to each state to determine which areas if their state would become Opportunity Zones. In the state of Colorado, our very own Stephanie Copeland was responsible for designating the Opportunity Zones. Before becoming a partner at Four Points, she headed economic development for Governor Hickenlooper where she was tasked with designating the zones.

Does OZ investing work for businesses, or is it really only fit for real estate?

While our fund is exclusively focused on real estate backed assets that can clearly endure the 10 year hold to maximize the OZ benefits, Opportunity Zones also offer significant potential benefits to business investments. Most direct business investments seeking OZ benefits are single investments (not multi-asset funds) and are entered with the understanding that a 10 year hold might be in the best interest of the company or the investor.

What is the 90% test for a fund?

Qualified Opportunity Zone funds need to certify that 90% of their capital is placed in a qualified investment every December 31st and June 30th. Treasury eased compliance by allowing funds to exclude capital raised in the previous 180 days for this test. In other words, if Four Points accepted investor capital on July 15th in 2019, 90% of the capital would need to be invested in a qualified investment by June 30th, 2020. This test still represents a timing challenge for funds. Right-sizing the raise to match real deals is a large driver of our decision to lock down deals first and then raising the appropriate amount of capital to match.

Do social concerns, such as gentrification, exist with the influx of capital from OZ funds?

Some communities, especially in urban areas, will experience more rapid gentrification. Also, communities which were not chosen as Opportunity Zones will have an even harder time raising capital. While these concerns are real, Four Points is a firm believer that this bill will, on the whole, provide incredible benefit to the communities we are investing in. Our geographical focus is on "emerging" communities in Colorado (not Denver or any community on the Front Range) that need more workforce housing and hospitality to create independent local economies. Through the OZ program, Four Points can bring critical infrastructure, services and jobs to emerging communities.

What does doubling your basis mean? How does it apply to OZ investing?

Doubling your basis essentially means doubling your investment, which primarily applies to rehabilitating existing OZ property. Treasury has specified that investors need to double the value of the structure on the property, or in other words double the basis. So, if a property is purchased with land value of $300,000 and structure value of $400,000, then at least another $400,000 must be invested to improve the structures. Investors have 30 months to double their basis on the structure value. The intent is to prevent land banking, where people just park money in real estate to avoid taxes.