What are Opportunity Zones and Qualified Opportunity Funds?
Opportunity Zones (OZs) are geographic areas identified by the U.S. federal government as target areas for economic development. They were designated by the Tax Cuts and Jobs Act of 2017, Â which offers tax incentives for investments in developing these areas to drive capital to them that would otherwise flow elsewhere.
Qualified Opportunity Funds (QOFs) are special investment vehicles, structured as a corporation or partnership, and designed to invest in Opportunity Zone properties or businesses. To qualify as a QOF, the fund must invest at least 90% of its assets in eligible property within an Opportunity Zone. The key benefit for investors is the ability to defer or reduce capital gains taxes if they reinvest those gains into a QOF.
Investors can defer and potentially reduce capital gains taxes by reinvesting gains into QOFs that invest in real estate development, business growth, infrastructure improvements or other effective projects in OZs. QOFs pool capital to invest in OZ projects and must meet specific regulatory requirements to qualify for the designated tax benefits.
As a Sponsor and real estate developer, you can create and offer QOFs to investors for tax deferral, reduction and exclusion, providing your investors with a lucrative investment option with potential capital gains. Investors can defer capital gains taxes on the amount of their investment in a QOF until December 31, 2026 or until they sell their investment. If the investment in the QOF is held for at least five years, investors can reduce their original capital gains tax by 10%. If held for seven years, this reduction increases to 15%. If the investment is held for at least 10 years, any new gains generated from the QOF investment can be excluded entirely from capital gains tax. Because of these benefits, QOFs are extremely popular with investors and with Sponsors.
Navigating the QOF Securities Offering Gauntlet
Tobin & Company serves as a Managing Broker Dealer (MBD) for QOF offerings, bringing a wealth of experience in regulatory compliance and distribution support to  Sponsors creating QOF offerings for their investors. TOBIN has supported numerous QOF securities offerings, including private placement offerings for Caliber and Grubb Properties, since the inception of QOFs seven years ago.  When you engage TOBIN as your Managing BD for your Opportunity Zone private placement offering, you can outsource significant compliance obligations, duties and tasks, including those related to the investor subscription process and compliance, the management and compensation of your internal sales representatives, and the management and compensation of your outside distribution network.
Outsourcing the Securities Compliance of your QOF Offering to your Managing Broker-Dealer
A Managing Broker-Dealer plays a critical role in successfully executing a QOF offering. An MBD such as TOBIN is typically responsible for overseeing the compliance, regulatory, and even the distribution aspects of the securities sales involved in the fund’s capital-raising process.
Come back next month to learn more about outsourcing your securities compliance obligations to a Managing Broker. Like any good serial Western, be sure to tune in next time.