Video - Qualified Opportunity Zones vs. 1031 Exchanges

A lot of people have been asking me for information regarding the qualified opportunity zones and where to find information about where the census tracts are that are designated as opportunity zones.

Here is a link for Designated Census Tracts for Opportunity Zones in Minnesota.

This information will be helpful to determine whether or not a qualified opportunity zone is a better option for you than doing the traditional 1031 exchange.

Most people like 1031 exchanges because the tax deferral is indefinite and maybe even perpetual because you can defer your gains and there’s really no expiration date.

Qualified opportunity zone deferral, on the other hand, only lasts until December 31, 2026. At that point you're going to recognize gains. Some of your gains may be forgiven if you hold the property for five or seven years, but the bulk of your gains will be recognized at that time. So it is a perishable tax deferral.

The qualified opportunity zone may be a more feasible method for tax deferral if you’re in a partnership and it’s difficult or impossible to break up the partnership and reconfigure the ownership to satisfy the holding requirements of owning the actual interest in the real estate.

If you’re in a situation where you’ve got MOB (mortgage over basis), you may want to do the 1031 exchange and avoid the opportunity zone investment. In a qualified opportunity zone investment, you actually have to invest cash equal to the amount of your gains (or profit) into the qualified opportunity fund. But if you’ve got more debt than basis in the property you’re selling, you may not have theh liquidity to invest cash into the opportunity zone. If you have extra cash lying around you can make up the difference out of your own pocket but who wants to add cash if they don’t have to?

The 1031 exchange may be a better play in this situation because you don't actually have to reinvest the profits, you just have to reinvest the proceeds.

  • Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

 

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