Expertise

Our vertically integrated team of in-house professionals internally manage our own portfolio of properties, investments, loans and development projects.  This platform has successfully completed over $1.5 billion of tax credit transactions, $3 billion in real property transactions and today runs the company's robust and diverse privately held portfolio of more than 2.5 million square feet.

Opportunity Zones

The 2017 tax act signed into law on December 22, 2017 created a new program offering federal tax benefits to encourage investment in designated low-income “Opportunity Zones” (“O-Zones”).  The O-Zone program has the potential to be a powerful tool in investment and tax planning strategy and creates a unique opportunity for investors to move unrealized capital gains into new asset types, particularly real estate, without suffering immediate tax consequences.

While many other federal tax incentives, such as the general business tax credits, are difficult for individuals to utilize due to passive-activity, at-risk and other limitations, the benefits provided under the O-Zone program have broad appeal to both individual and corporate taxpayers. Additionally, O-Zones offer benefits and versatility that the more traditional 1031 exchange does not.  For example, an O-Zone investment can be used to defer gains from any type of investment, not just from the sale of real property.

O-Zones are specific low-income areas that were designated by each state, U.S. territory and the District of Columbia in early 2018.  Each jurisdiction could designate 25 or 25%, whichever is greater, of its qualified census tracts as O-Zones. The requirements for deployment of capital into eligible O-Zone property and businesses are very similar to those for the New Markets Tax Credit (NMTC). The Bernstein Companies has deployed over $1 billion of capital in NMTC transactions.

To take advantage of the O-Zone program, an investor must invest through a certified Opportunity Fund (“O-Fund”), which in turn must invest at least 90% of its assets in qualified O-Zone businesses/property. The O-Fund investment offers three federal tax benefits to an investor:

If a taxpayer triggers a capital gain (from any source) but invests in a certified O-Fund within 180 days:

  1. Recognition of this original capital gain can be deferred until December 31, 2026. The deferral is equal to the lesser of the original capital gain or the investment in the O-Fund. The deferral ends the earlier of 12/31/2026 or when the investment in the O-Fund is disposed of.
  2. Up to 15% of the original capital gain can be forgiven. If the O-Fund investment is held for five years, 10% of the original gain is forgiven. An additional 5% is forgiven after seven years.

If a taxpayer holds an investment in a certified O-Fund for at least ten years:

  1. No capital gain recognized on appreciation of the O-Fund investment

These combined benefits deliver a significant reduction to an investor’s cash outlay to pay taxes1 that will typically boost an investor’s projected after-tax return over ten years by >50% (i.e. a 10% yield becomes a 15+% yield).

The Bernstein Companies has a series of O-Fund investment structures providing investors the flexibility of both actively-managed and self-directed fund options.  TBC’s O-Funds can be aimed at any number of different real estate sectors; diversification and investment parameters vary based on investor preference. All of TBC’s O-Funds are designed to ensure qualified investments are made, compliance with O-Zone program rules is maintained and O-Zone tax benefits are ultimately available to investors.

 

For inquiries on Opportunity Funds, please contact Stefan Kershow

1 Under the 2017 tax act, corporations are now subject to a 21% flat tax rate, while high-net worth individuals will typically be subject to a 20% long-term capital gains rate plus a 3.8% net investment tax rate (combined 23.8% rate) on the sale of investments.