TR-HNR-October-November-2019

STRATEGY

SELF-DIRECTED IRA ACCOUNTS

regulations for 1031 exchanges in an attempt to do their homework before placing their capital. Others opt blindly for one option or the other, trusting project managers with whom they have previous rela- tionships not to lead them astray. Both options are better than doing no research at all, but neither is truly the best way to make a deci- sion about where to put your hard- earned capital. As a self-directed investor, you are in possession of one of the most powerful investing tools in existence, your self-direct- ed retirement account or accounts. Make sure your decision to invest in an opportunity zone or to leverage a 1031 exchange strategy does not inadvertently hobble your ability to gain tax advantages or restrict your capital’s future flexibility. KNOWBEFORE YOU INVEST: OPPORTUNITY ZONE BASICS If you are like a lot of investors, self-directed and otherwise, you probably have an idea of what opportunity zones are but may not really have the whole picture in place. Here is a quick summary from the IRS: “[An opportunity zone is] an economically distressed com- munity where new investments, under certain conditions, may be eligible for preferential tax treatment. Localities qualify as opportunity zones if they have been nominated for that des- ignation by the state and that nomination has been certified by the Secretary of the U.S. Treasury via his delegation of authority to the Internal Reve- nue Service.”

if you believe an area should be an opportunity zone, unless it has been certified as a QOZ, then any opportunity funds operating in the area will not be able to offer you the incredible tax advantages as- sociated with qualified opportunity funds (QOFs). Speaking of tax advantages, here are three basic facts about QOFs and QOZs you must know before you invest: 1. According to current legisla- tion, you must invest in a QOF by the end of 2019 to qualify for the greatest possible finan- cial benefit. Although you can invest in a QOF after December 31, 2019, doing so may not allow sufficient time for you to defer, reduce, or eliminate the maximum amount of capital gains taxes permitted under the opportunity zone program. QOZ investments made by the end of this year could, if prop- erly managed, bring:

1031 Exchanges, Opportunity Zones & Self-Directed Retirement Accounts WHY SELF-DIRECTED INVESTORS HAVE THE BEST OF BOTH WORLDS.

anything that I’m not getting within my self-directed account already?” Naturally, you cannot get a simple “yes” or “no” answer to this ques- tion. To further complicate matters, many organizations that have spent years targeting real estate inves- tors seeking tax advantages for their investments are muddying the waters. They make the argument that, in truth, a 1031 exchange is a better vehicle when it comes to tax benefits than a QOZ anyway. GOING IT ALONE Self-directed investors often find themselves on their own when it comes to putting the pieces of the puzzle together. Many try wading through the massive piles of IRS minutia regarding the opportu- nity zone program and rules and

a. Deferment of capital gains on the initial in- vestment b. Step-up in basis on the original gains after five- and seven-year holding periods c. Zero capital gains on appreciation of the asset after holding in the fund for a period of 10 years

by Carole VanSickle Ellis

2. QOFs allow you to move capital gains from one investment class to another. This is important be- cause 1031 exchanges only per- mit “like-to-like” investments,

hether you have been in real estate for one day or more

nity zone (QOZ) is almost here? As that deadline approaches, in- vestors and fund managers are be- coming increasingly fevered in their efforts to attract as much capital as possible to their target QOZs. How-

ever, a lot of self-directed inves- tors, individuals using self-directed IRAs and 401(k)s to invest in real estate and other alternative assets, are starting to wonder: “Do opportunity zones really offer

than a decade, you can’t miss the current buzz about opportunity zones. Did you know the deadline for investing in a qualified opportu-