Discussion of Opportunity Zones with no capital gains taxes in the US

[infofront]

On a side note, so in Puerto Rico, you still pay taxes on stuff outside of the Island. So the only 'real' advantage is, from what I understand, no capital gains taxes.

But on the other hand,  Puerto Rico has a Commonwealth tax, but I can't seem to get a handle on what the covers. Also local and sales taxes.

others? Anyone else researched this and can whip some numbers at me to compare?

unlikely to act on this (coward) but curious

brad

I researched Puerto Rico quite thoroughly a while ago. I think it ended up being 0% capital gains taxes all the way around.

The problem is, you still pay full capital gains taxes on anything you've purchased up to the point of becoming a resident. It's only the capital gains taxes you accrue after becoming a resident that are tax free.

[jbreher]

Here is the FAQ from the IRS:

https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions

And the actual law:

https://www.law.cornell.edu/uscode/text/26/subtitle-A/chapter-1/subchapter-Z

Thanks for that. From the FAQ, it appears that one may be a passive investor in a Qualified Opportunity Fund, and get all the tax benefits of creating your own business in an Opportunity Zone.

The benefit I see here is that one Bitcoiner who has a great idea for a biz on an OZ, but requiring more capital, may be able to bring in other Bitcoiners with no particular entrepreneurial spirit in as silent partners, and all would gain the tax advantages.

From the FAQ:

Q. Do I need to live in an Opportunity Zone to take advantage of the tax benefits?
A. No. You can get the tax benefits, even if you don’t live, work or have a business in an Opportunity Zone. All you need to do is invest in a Qualified Opportunity Fund.

[jbreher]

I researched Puerto Rico quite thoroughly a while ago. I think it ended up being 0% capital gains taxes all the way around.

The problem is, you still pay full capital gains taxes on anything you've purchased up to the point of becoming a resident. It's only the capital gains taxes you accrue after becoming a resident that are tax free.

Takes half-year+1day to establish residency. Not too onerous, for someone sitting on a pile of cap gains. Not by half.

[jbreher]

Upon closer inspection it appears that it only defers taxes for 8 years and then reduces them by a paltry 15%.

I don't think that is true:

(c) Special rule for investments held for at least 10 years
In the case of any investment held by the taxpayer for at least 10 years and with respect to which the taxpayer makes an election under this clause, the basis of such property shall be equal to the fair market value of such investment on the date that the investment is sold or exchanged.

Of course, IANAL. I don't understand how this interacts with the 2026 date.

[Elwar]

Upon closer inspection it appears that it only defers taxes for 8 years and then reduces them by a paltry 15%.

I don't think that is true:

(c) Special rule for investments held for at least 10 years
In the case of any investment held by the taxpayer for at least 10 years and with respect to which the taxpayer makes an election under this clause, the basis of such property shall be equal to the fair market value of such investment on the date that the investment is sold or exchanged.

Of course, IANAL. I don't understand how this interacts with the 2026 date.

I think they just set 2026 as an expiration date of the law.

[infofront]

I researched Puerto Rico quite thoroughly a while ago. I think it ended up being 0% capital gains taxes all the way around.

The problem is, you still pay full capital gains taxes on anything you've purchased up to the point of becoming a resident. It's only the capital gains taxes you accrue after becoming a resident that are tax free.

Takes half-year+1day to establish residency. Not too onerous, for someone sitting on a pile of cap gains. Not by half.

But you still have to pay taxes on those capital gains. Only the capital gains you accrue after officially becoming a resident become tax free.

[jbreher]

I researched Puerto Rico quite thoroughly a while ago. I think it ended up being 0% capital gains taxes all the way around.

The problem is, you still pay full capital gains taxes on anything you've purchased up to the point of becoming a resident. It's only the capital gains taxes you accrue after becoming a resident that are tax free.

Takes half-year+1day to establish residency. Not too onerous, for someone sitting on a pile of cap gains. Not by half.

But you still have to pay taxes on those capital gains. Only the capital gains you accrue after officially becoming a resident become tax free.

I believe that you are incorrect. As long as you have not had a taxable event (i.e. cashed out), your cost basis is irrelevant.

If you think I am mistaken, a cite would be helpful.

[Thomas6]

Take a look at this page, might be helpful. I think this is the first available o-fund for investing in.

https://fundrise.com/opportunity-fund

[jojo69]

wow, just wow

land I was already interested in is located smack in the middle of an OZ


I think I might need a tax attorney

[Theb]

Sadly the ones who will get to benefit the most are the companies willing to set up shop in these so-called "O-zones", freeing up a considerable amount of tax-burden in exchange for locally hiring people in these low income areas is sort of a win-win scenario for them. They get to have their normal business running just by employing local residences (hoping that it will boost their economy and decrease unemployment rate) plus they have a big tax cut on the local tax deduction. Sadly for willing local entrepreneurs in that area who don't have any capital to begin with will have little chance to benefit their own area being classified as a O-zone, this tax benefit are really meant for the big companies to lure them in that specified "O-zones"

[Robert_Austin]

https://www.forbes.com/sites/forbesdigitalcovers/2018/07/17/an-unlikely-group-of-billionaires-and-politicians-has-created-the-most-unbelievable-tax-break-ever/


"The heart of this new law: Opportunity Zones, or "O-zones," low-income areas designated by each state. Investors will soon be able to plow recently realized capital gains into projects or companies based there, slowly erase the tax obligations on a portion of those gains and, more significantly, have those proceeds grow tax-free. There are almost no limits. No limits on how much you can put in, how much tax you can avoid and, for most of the country, the types of taxes you can avoid, whether federal, state or local. No limits on how long those proceeds compound tax-free. And precious few limits on what types of investments you can make."

Let's dig into this new tax law and figure out how bitcoiners with high capital gains can take advantage of this legal gift from Washington.

This has been implemented in other countries recently as well to try and stimulate new business. I think Russia, Turkey, Germany, and a handful of Latin American countries have created special economic zones so corporations can build factories on the cheap.

Key word there is corporations. I'm not sure if these tax benefits apply to individuals or limited liability companies. You'd have to dig through the law itself with a keyword search to find out for sure.

In regards to cashing out, depending on how strict the tax laws are enforced in Puerto Rico, there's a chance you can live off of those gains without declaring them as personal income. Or make a "service payment" to another entity in bitcoin (yourself)

[audaciousbeing]

https://www.forbes.com/sites/forbesdigitalcovers/2018/07/17/an-unlikely-group-of-billionaires-and-politicians-has-created-the-most-unbelievable-tax-break-ever/


"The heart of this new law: Opportunity Zones, or "O-zones," low-income areas designated by each state. Investors will soon be able to plow recently realized capital gains into projects or companies based there, slowly erase the tax obligations on a portion of those gains and, more significantly, have those proceeds grow tax-free. There are almost no limits. No limits on how much you can put in, how much tax you can avoid and, for most of the country, the types of taxes you can avoid, whether federal, state or local. No limits on how long those proceeds compound tax-free. And precious few limits on what types of investments you can make."

Let's dig into this new tax law and figure out how bitcoiners with high capital gains can take advantage of this legal gift from Washington.

This topic is more of Economics to me than legal but on a second look its just might be right here as we are talking about the law that has been enacted and how blockchain startups can take advantage of it. Firstly, I think its a good one to want to encourage development in certain areas of the country and identifying and admitting leaving this to the hands of government might not happen in a lifetime because most times, concentration is always on the major cities that diplomats and foreign nationals will only visits. It then falls back to the private sector to take the bold step and develop the areas concerned. Over here too, there is some form of incentive for businesses that invest in areas where some basic facilities have not been provided by government in a way of tax incentives.

For crypto related start ups, I think there is still more need to understand the details of the law if it makes provision for that and also understand what is required of them to be eligible for the tax incentive because I don't expect a crypto start up which just have a branch of their office or just apartment to run their online activities to be eligible. So, in essence there is need to do more understanding by employing the services of professional lawyers before taking the decision to set up business based on face value information.

[jbreher]

Key word there is corporations. I'm not sure if these tax benefits apply to individuals or limited liability companies. You'd have to dig through the law itself with a keyword search to find out for sure.

The law is linked upthread. It has been dug through. The key word is not 'corporations' it is 'taxpayer'. As in, inclusive of individuals and LLCs.