Park View Oz Reit Inc · OTC:PVOZ
Park View Oz Reit — Conference Presentation (February 2022)
59 slides from Park View Oz Reit's conference presentation, February 2022
Slide 1: Getting the Most Out of Opportunity Zone Tax Incentives
Getting the Most Out of Opportunity Zone Tax Incentives MICHAEL KELLEY CEO - PARK VIEW OZ REIT Park View OZ REIT’s SEC filings may be found at: EDGAR Search Results (sec.gov) www.parkviewozreit.com 1
Slide 2: Agenda
Agenda 1) Qualified Opportunity Funds (QOFs) the tax incentives and the basics of how they work 2) Issues that have held the adoption of QOF investing back and how to solve them – OZ REIT structure - Investor access - Financial planning utility 3) Special Situations - Comparing QOFs to 1031s - Colle
Slide 3: Key Points
Key Points Impactful: Qualified opportunity fund (QOF) incentives can substantially improve after tax returns. Broadly Applicable: They work with any type of capital gain so most investors can benefit. Improved Accessibility: Owning shares of stock in a QOF is a more suitable option in most circumst
Slide 4: OZ Program Background
OZ Program Background “Investing in Opportunities Act” Enjoyed Bipartisan Support – Designed to encourage capital investment in low-income neighborhoods. Promoting economic equality. Originally championed by Sean Parker (Federal + NIIT + California) 20% + 3.8% + 13.3% = 37.1% = Warehoused Capital On
Slide 5: Tax Cuts and Jobs Act (TCJA)
Tax Cuts and Jobs Act (TCJA) Created two new tax incentives: Opportunity Zone (OZ) Incentives ◦ The potential for the deferral and potential elimination of capital gains Qualified Business Income (sec. 199A) ◦ The potential for a 20% reduction in income tax www.parkviewozreit.com 5
Slide 6: What is a Qualified Opportunity Fund (QOF)?
What is a Qualified Opportunity Fund (QOF)? QOFs are the entity through which the Internal Revenue Service oversees opportunity zone compliance. You must invest through a QOF to be eligible for opportunity zone tax incentives. QOFs must invest 90% of their assets in qualified opportunity zone proper
Slide 7: QOF Benefits
QOF Benefits 1) Tax liability for the original capital gain is deferred until the QOF is sold or December 31, 2026. 2) The deferred tax liability is reduced by 10% after the QOF is held 5 years. 3) After 10 years, all capital gain tax liability on the new OZ investment is eliminated (the benefit las
Slide 8: QOF Benefits Illustration
QOF Benefits Illustration 1 2 3 10% Tax 100% Tax Tax Deferral Elimination Elimination After a 10 Year Hold Expires in 2047 Until December After a 5 31st, 2026 Original Capital Year Hold QOF Capital Gain Gain 8
Slide 9: How will QOF Benefits Affect Returns?
How will QOF Benefits Affect Returns? Many market pundits calculate the QOF benefits increase returns on an investment earning 7 or 8% by about 3% annually on an after tax equivalent. This means your capital is returning roughly 40%* (3%/7.5%=40%) more on an after-tax basis year after year. Because
Slide 10: QOF Benefits One and Two Example
QOF Benefits One and Two Example Defer Tax Capital Potential 10% QOF up to Gain of reduction in Investment 12/31/26 $1,000,000 tax liability Pay the Tax Capital Gain $1,000,000 Tax liability = 20% cap gain + 3.8% NIIT = 23.8% ($238,000) Capital Gain $1,000,000 5-year earnings on deferred tax at 11%
Slide 11: QOF Third Benefit Example
QOF Third Benefit Example Tax savings based on the same $1,000,000 gain with an 11% compound annual growth rate Tax Savings 3500000 3000000 2500000 2000000 1500000 $2,995,000 1000000 $1,681,000 500000 $901,000 $438,000 0 Year 0 Year 5 Year 10 Year 15 Year 20 Year 25 11
Slide 12: Your Clients Want to Know More
Your Clients Want to Know More Clients with a capital gain liability will ask about OZ tax incentives Just knowing the basics is enough but it is essential 12
Slide 13: Question 1#
Question 1# 13
Slide 14: Breaking Out the Bazooka
Breaking Out the Bazooka Big – This program can be many times bigger than previous government efforts. EIG estimates that there are 6 trillion dollars of capital gain liability owed by U.S. taxpayers (realized and unrealized). Concentrated- The QOF incentives are focused on only 25% of eligible cens
Slide 15: Conforming States - Individual Income Tax
Source: Novogradac Conforming States Individual Income tax Only California, Massachusetts, Mississippi and North Carolina are OZ non- conforming. Full Conformity - Rolling: The state automatically conforms to the current IRC as it is amended. Full Conformity - Adopted: The state conforms to the IRC
Slide 16: Conforming States - Corporate Income
Source: Novogradac Conforming States Corporate Income Full Conformity - Rolling: The state automatically conforms to the current IRC as it is amended. Full Conformity - Adopted: The state conforms to the IRC as of a specific date that is after the enactment of the Opportunity Zones legislation. Limi
Slide 17: Who is Eligible for QOF Benefits?
Who is Eligible for QOF Benefits? Anyone with a realized capital gain owed to the IRS. • Foreign or domestic • Could be an individual, corporation, a REIT, trust or partnership Mixed assets - Only the capital gain investment qualifies for the tax benefits, but investing non-capital gains funds is al
Slide 18: What Capital is Eligible for QOF Benefits?
What Capital is Eligible for QOF Benefits? Almost any type of capital gain is eligible. ◦ Capital which was not at risk, does not qualify. Examples would be one half of an option straddle or carried interest. The capital gain must be reinvested in a QOF within 180 days. The rule is complex but gener
Slide 19: 180 Day Investment Period Installment Sales
180 Day Investment Period Installment Sales The capital gain proceeds for an installment sale are considered a new capital gain in the year they are received. The reinvestment period can start either when the payment is received or at year end. If you are receiving monthly installment payments, you
Slide 20: 180 Day Investment Period 1231 Gain
180 Day Investment Period 1231 Gain 1231 gains and losses do not have to be netted. The investor can choose to begin the 180 day investment period starting: ◦ on the date of the inclusion event, ◦ at the taxable year end of the entity or ◦ on the date the entities taxes are dues without extension. A
Slide 21: 180 Day Investment Period RICs and REITs
180 Day Investment Period RICs and REITs The investor can choose to begin their investment period: ◦ When the capital gain is distributed. ◦ At the RIC or REIT’s financial year end. 21
Slide 22: 180 Day Investment Period Partnerships
180 Day Investment Period Partnerships A partnership investor may choose to begin their 180-day investment period: ◦ On the date the partnership realizes the gain. ◦ At the partnership’s year end – Typically December 31st. ◦ When the partnership’s taxes are due without extensions – Typically March 1
Slide 23: What is an Opportunity Zone?
What is an Opportunity Zone? OZs are census tracts that qualify as low-income communities. Census tracts are typically 2,000 to 8,000 in population. The Governors of each state were able to choose 25% of their eligible census tracts for OZ designation. Across the country there are more that 8,700 op
Slide 24: Opportunity Zone Business Property (QOZBP)
Opportunity Zone Business Property (QOZBP) Must be tangible commercial property, such as real estate or equipment, acquired from an unrelated party, that meet one of two criteria. • Original use: Not yet placed in service or unoccupied for 3 years. or • Substantially improved: Improved by at least a
Slide 25: Question #2
Question #2 25
Slide 26: Why are QOFs a Big Deal
Why are QOFs a Big Deal The tax incentives are available for nearly any type of capital gain. ◦ 6 trillion dollars worth of capital gains owed to the Treasury. ◦ People do not like paying taxes! The incentives are substantial. ◦ Professional investors will fight hard for even a minimal increase in r
Slide 27: What are Financial Professionals Saying?
What are Financial Professionals Saying? QOFs continue to be a “hot topic” because of their generous tax incentives and positive social impact. However, the perception is that QOFs are only accessible to a small and very wealthy portion of the investment community. 27
Slide 28: What Has Held QOF Investments Back?
What Has Held QOF Investments Back? Not Accessible: Almost all QOFs are structured like commercial real estate partnerships. These vehicles do not appeal to most investors. Poor financial planning utility: For investors to maximize their QOF benefits it is important that they can choose a holding pe
Slide 29: The A.I.V. Problem
The A.I.V. Problem Timing: Matching the investor’s 180 day window with the QOF’s funding timeline. Capital: Finding a QOF that needs the amount of gain you are trying invest. K-1 (partnership) tax forms are notoriously difficult. Illiquidity - long capital commitment periods. Asset Profile: Finding
Slide 30: History Repeats - REIT Background
History Repeats - REIT Background - 1960 sponsored by Senator John Kennedy and signed by President Eisenhower. - Commercial real estate created great wealth but only a small percentage of the investing public participated. - Essentially a tax-free corporation. - In exchange REIT must: ◦ Have at leas
Slide 31: Solution is to Structure the QOF as a REIT
Solution is to Structure the QOF as a REIT The QOF stays open and compliant No capital calls Diversified portfolio of Qualifying Commercial Low investment minimum – only recent capital Real Estate gains receive the QOF incentives Shares are freely tradable Qualified Business Income (QBI) Deduction 1
Slide 32: Qualified Business Income (QBI) Sec 199A
Qualified Business Income (QBI) Sec 199A 20% of taxable income paid out as dividends is effectively eliminated. We will payout at least 90% of our taxable income through dividends. Eligible for the QBI deduction but better than QBI. www.parkviewozreit.com 32
Slide 33: Holding period that suits each investor's financial needs
The key is to have a holding period that suits each investors unique financial needs. Tradition Partnership QOF QOF REIT 10-year Lock-up / Liquidation Tradable / Stays QOF Compliant 3 Year Hold Not Available 3 Year Tax Deferral 5 Year Hold Not Available 5 Year Tax Deferral, 10% Tax Elimination 10 Ye
Slide 34: Tax free compound growth is a great way to create wealth
Tax free compound Growth Beyond 10 Years growth is a great way to create wealth. $7,000,000 $6,000,000 Most funds do not $5,000,000 $4,648,000 allow their investors $4,000,000 to capture even half $2,675,000 of this benefit. $3,000,000 $1,081,000 $2,000,000 This example shows $1,000,000 a $1 million
Slide 35: Question #3
Question #3 35
Slide 36: Park View OZ REIT
Park View OZ REIT Grow quickly by giving investor what they need Accessibility - Enable all investors to benefit from QOF tax incentives. Liquidity and flexibility – Let’s investors maximize QOF benefits and financial planning utility. Low Fee Structure. Impact investment, putting capital to work wh
Slide 37: Investment Strategy: Value Driven and Diversified
Investment Strategy: Value Driven and Diversified Good Investments that happen to be in Opportunity Zones Seek attractive returns while minimizing risk: 1) Valuation / Due Diligence 2) Control Project Risk: Leverage, Permitting, Partnerships 3) Geographic and asset diversification - Multi-family, ho
Slide 38: Development Partners
Development Partners We will partner with developers who bring geographic and project specific expertise Cost effective Increased profit opportunities Eliminates conflict of interest on fees and when to build www.parkviewozreit.com 38
Slide 39: Positioned as a Preferred Partner
Positioned as a Preferred Partner Investment / Real Estate QOF Management Financial Advisor Development www.parkviewozreit.com 39
Slide 40: Ideal Project Size – Middle Markets
Ideal Project Size – Middle Markets We bring institutional 50 Million discipline to the middle and Above market – more deals Park View OZ REIT more opportunity Middle Markets 5 Million and Below 40
Slide 41: Tax Benefits QOF/QBI
Tax payment for the original capital gain is deferred until the QOF is sold or December 31, 2026, whichever comes first. The deferred tax liability is reduced by 10%, via a step up in cost basis, after the QOF is Tax Benefits held for 5 years. QOF/QBI After 10 years, all capital gain tax liability o
Slide 42: REIT structure means no double taxation
REIT structure means no double taxation. No K-1 (or multiple K-1s) to wait Benefits for: You will receive a 1099-DIV. Continued Tradable shares give investors much better control of their investment period. 42
Slide 43: Keep Fees Low
No sales commission or investor service fees Low 5% carried interest (versus 20% Keep Fees Low traditionally) 0.75% management fee (versus 2% traditionally) 43
Slide 44: Transparency and a Low Investment Minimum
Public financial reports and SEC oversight Transparency give shareholders much greater financial and a Low transparency than private real estate funds Investment Minimum Low investment minimum of $10,000 per investor 44
Slide 45: Park View OZ REIT Service Providers
Park View OZ REIT Service Providers www.parkviewozreit.com 45
Slide 46: Question #4
Question #4 46
Slide 47: 1031s aka: “Like Kind Exchange”
1031s aka: “Like Kind Exchange” What is the purpose - To encourage reinvestment in property used a trade or business or for investment - To avoid unfair taxation Proceeds must be segregated - Typically, a qualified intermediary is hired 45 days to identify property and 180 days to close Tax act of 2
Slide 48: 1031 Exchange (continued)
1031 Exchange (continued) All proceeds must be reinvested to defer the entire capital gain liability - Gain, principal, debt The tax deferral can be rolled over into new 1031 properties again and again - The capital gain liability only becomes due once the cash is no longer invested in an eligible 1
Slide 49: Which is Better for You?
Which is Better for You? Like Kind Exchanges Only Any Capital Gain is Eligible Requires Reinvest of All Proceeds Requires the Reinvestment of Gains Can Defer Tax Indefinitely Deferred Capital Gains Can Defer Tax Until December 31, 2026 Strict Cash Tracing 1031 Estate Planning QOF No Cash Tracing 45
Slide 50: Can 1031s and QOFs Work Together?
Can 1031s and QOFs Work Together? Sort of: ◦ 1031s need to invest directly into real estate – they can not buy a fund like a QOF. ◦ A QOF could engage in a 1031 transaction. QOF can help with boot QOF can help with failed 1031s ◦ Failure to identify properties within 45 days ◦ Failure to close withi
Slide 51: Special Situations
Special Situations Gains from precious metals (even ETFs), art and other collectibles (28% capital gain tax rate) no longer qualify for a 1031s Investors with liquidity (available cash) can trigger gains to qualify for QOF investments and repurchase the original asset with a new higher basis Short t
Slide 52: Irrevocable Grantor Trusts Paired with QOF
Irrevocable Grantor Trusts Paired with QOF are a Super Charged Way to Transfer Wealth Trust can be highly effective way to removing highly appreciating assets from an estate subject to estate tax. Trusts can protect assets from lawsuits and other claims. Trust do not enjoy a step up in basis on deat
Slide 53: Benefit of Pairing a QOF with an IGT
Benefit of Pairing a QOF with an IGT Current Sale Price in 25 Cost Basis at Taxable Capital After Tax Value Valuation Years Sale Gain IGT $10,000,000 $90,000,000 $10,000,000 $80,000,000 $71,000,000 IGT / QOF $10,000,000 $90,000,000 $90,000,000 Zero $90,000,000 Pairing Tax Savings $19,000,000 Using a
Slide 54: Summary – Estate Planning Trifecta
Summary – Estate Planning Trifecta Minimize estate tax Protect assets for the next generation Minimize capital gain tax 54
Slide 55: Key Points
Key Points ➢QOF incentives are broadly applicable. Almost all investors will have a capital gain over time ➢QOF incentives can significantly increase after tax returns ➢Stock ownership greatly increases access to QOF incentives ➢Control of the QOF holding period is key to maximizing QOF tax incentiv
Slide 56: A Holistic Approach to Wealth Management
A Holistic Approach to Wealth Management - Create a plan suited to each client’s unique financial needs. - tax efficient and low fee investment plan - Investors control the timing and amount of investment - Available to accredited and non accredited investors - Low investment minimum with tradable s
Slide 57: Appendix: How to Claim Tax Incentives with the IRS
Appendix: How to Claim Tax Incentives with the IRS Use form 8949 on entry and exit of the QOF Use form 8997 annually while invested in the QOF For QBI deduction use form 8995 You will receive a 1099-DIV not a K-1 www.parkviewozreit.com 57
Slide 58: Further Reading
Further Reading “How Collectors of Art Can Benefit from QOFs” CPA Journal, March 2019 by Sid Kess and Michael Kelley. “Preserving Generational Wealth” CPA Journal, January 2020 by Michael Kelley and Michael Gershon “New Qualified Opportunity Funds are Starting to Fulfill Their Promise” Thomson Reute
Slide 59: Contact Information
Contact Information Michael Kelley Park View OZ REIT One Beacon Street 32nd Floor Boston MA 02108 (617) 971-8807 mikefkelley@parkviewozreit.com www.parkviewozreit.com 59
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