Ashley Tison on The Latest with Opportunity Zones
Ashley Tison, Esq. is the founder of OZPros, the leading Opportunity Zone consultancy. A leading consultant and attorney on Opportunity Zones, tax advantaged structures and investing strategies, Ashley has advised over 500 commercial property investors, family offices, investment advisors and high net worth individuals on how to how to best maximize their tax savings in real estate investments, how to maximize the positive community impact of their projects, selecting an optimal investment strategy, and properly navigating the applicable regulations. Ashley is an engaging and enthusiastic speaker and / or guest covering topics such as opportunity zones, tax advantaged alternative investments, real estate, and tax planning for leading national conferences and educational seminars. https://ozpros.com/cauble/
Get commercial real estate coaching, courses, and community to jumpstart your investment journey over at CRE Central: www.crecentral.com
Key Takeaways:
Opportunity zones are still active and viable, despite some thinking the program has expired
The biggest benefit is the ability to defer capital gains taxes until 2026 and then potentially avoid them entirely if the investment is held for 10 years
Investors can set up a qualified opportunity fund (QOF) to hold their investments and get the tax benefits, rather than having to invest directly in a property
The QOF structure provides flexibility, as investors can buy and sell properties within the fund without affecting the 10-year holding period
Opportunity zones can also be used for estate planning purposes to avoid or minimize estate taxes
About Your Host:
Tyler Cauble, Founder & President of The Cauble Group, is a commercial real estate broker and investor based in East Nashville. He’s the best selling author of Open for Business: The Insider’s Guide to Leasing Commercial Real Estate and has focused his career on serving commercial real estate investors.
Episode Transcript:
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This episode of the commercial real estate investor podcast is brought to you by cre launch Pro. This online commercial real estate program is designed to take you from beginner to pro commercial real estate investor with access to all of my courses, our online community and monthly group coaching calls. Learn how to confidently buy your first commercial property today at www dot c r e launch pro.com. Welcome back to the commercial real estate investor podcast here with a guest that it was actually with us. Gosh, actually, I think it was almost 200 episodes ago is episode 58. About podcast. Yeah, man. When we initially dove into, you know, opportunity zones, one on one we were talking about what are they? How can you take advantage of them as an investor? And how do they work, which you know, they're not that easy to navigate, which is why Ashley is out there to help you do all of that. Ashley actually helped us set up our opportunity zone for the peerless mill, down near Chattanooga. So if you've been following along on that project, actually helped us get that one done. Actually, today, I figured we would dive into Yeah, man, it's a fun one. It's it's a fun one. It's kind of wild.
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But man, I figured today we dive into like, what's, what's the latest with opportunity zones, it feels like and this is probably just, you know, in my world, because you're in the opportunity's own world felt like, you know, 2020 2021 Everyone and their grandmother was talking about what's good and opportunity zones, the biggest thing ever. And since then, it's kind of gotten a little quiet. But I mean, it makes sense, because we had some deadlines a couple years ago, but catch us up on what's been going on in the world of, of opportunity zones. So that's the cool thing about what the legislators created. And I got to hand it to him that in three pages of legislation, they number one got the attention of private capital. Number two got it out of traditional markets. Number three, made it patient, but they put in there these kind of arbitrary and capricious deadlines that were tied to the end of the program, which they have to do whenever they have a tax program to make it so that it doesn't cost the government a fortune. And the that deadline was 20, December 31 2026. And so then they tied these deadlines back to that. So that if you held for seven years, you got a 15% reduction, if you held for five years, you got a 10% reduction. And, and so accordingly, those deadlines passed in 2019, and 2021. And so your sentiment is actually very common out there. They're like, Oh, opportunity zones, I thought those were dead, I thought that they expired. And that's absolutely not the case. Now, when when 2021 happened, it was insane, people were losing their minds to get their stuff into a nosy and in the market was hot, and it was going crazy. Since then, the markets cooled off, you know, multifamily has slowed down a little bit, we still got, you know, different sectors of real estate that are still vibrant. But the access to capital has just kind of, you know, generally made things a little bit harder to do. And as a result, there aren't as many people having capital gains. And then that drives, you know, kind of folks looking for ways to offset their tax liability. But people are still selling businesses, crypto markets are, you know, have been crazy recently. So we're taking care of a bunch of those folks. And we're anticipating that after this election year that we'll probably get some legislation to extend to the Ozy program, which if that happens, those that'll pick up those incentives again, so to go back to that 10% or 15% reduction, but what smart investors should be doing is hedging their bets that it may not. And so accordingly, it's like hey, listen, I should probably go ahead and get one of these started. And whether you have an Ozy deal or not right now, it actually benefits you to start that 10 year hold on the qof. Because ultimately, it's the 10 year hold. That is where all the magic happens. It's not how long you hold the asset. It's how long you've held your investment in the fund. And when that hits 10 years, you get a step up and basis the fair market value on everything that you own. And so we've we've had a lot of success in setting these up for people literally just to have them age so that that way they've got a vehicle for doing Ozy deals in the future. And using highly depreciating assets that they can depreciate and then sell into the marketplace and not have to take that you know, that depreciation recapture or pay capital gains on it. So it becomes really powerful. And we were helping a lot of people to kind of navigate through that. Yeah, the interesting thing to me about opportunity zones is that it is attractive for all kinds of capital, right? It doesn't have to be real estate. You know, as Ashley said, crypto, right. If you buy crypto and then all of a sudden you sell crypto you probably have capital gains. Same with the stock market. Same with many other types of investments that are not
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Real Estate real estate just happens to be where the opportunity zones are. And there's a lot of other advantages for being in real estate investing. Anyway, on that side, you mentioned something that I thought was pretty interesting. So let's talk about the fund versus the properties. Because when opportunity zones first came out, a lot of people felt, okay, I've got to put my cash into this property, fix it up and let it sit here for 10 years, but you're saying it just has to be in the font. So can you walk us through what that looks like? Yeah, so in, I think that I did it the last time where I shared my screen, and I showed the opportunities cheat sheet. And so you've got to stack triangles. And if anybody wants the opportunity zone cheat sheet, we actually set up a special landing page just for your listeners, Tyler was an awesome promotional items. And it's Ozy proz.com/cauble. And we'd love for folks to take a look at that. And in that on that cheat sheet, you've got your top triangle that's up there. And then you've got your bottom triangle, and then you've got your property. And so the top triangle is your qualified Opportunity Fund. And that's just an LLC tax as a partnership, it's fairly simple. But that's your holding company. And so the magic happens when your investment into that entity turns 10 years old, when that happens. Now everything that's owned downstream from that, because you could have multiple opportunities on businesses that you own, you could have real estate, you could have multiple real estate assets that are in different QC B's, you could buy real estate in 20. You know, like, literally, if you set it up today, you could buy it in 2033, hold it for 367 days, and sell that as a capital asset, and be able to get the step up and basis, the fair market value. And that's where this gets really powerful is to your point. It doesn't have anything to do with how long you hold the asset. It's how long you hold your investment in the fund. So that's what we've been doing is helping people get their funds to get aged. Yeah, that's, that's what you helped us do. Right is get our fun together. And we that that's what we utilize that was the investment vehicle into into peerless mill. Now, I mean, just playing devil's advocate here, it seems like that might be a bit of oversight on the government's part and a bit of a loophole. Do you think that that could get, you know, that hole could get plugged anytime soon? Or do you think that that's, you know, hey, they wrote it this way, people are investing the capitol in this way adhering to it?
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What does it look like? I think that that gets really tough for them to unwind that part of the regulations without significantly revamping the aggregate program. And it would almost at this point, require legislative action, because so many people have taken action relying upon that. And if you think about it, it still is hitting the the objective, right, because you still have to have your fun for 10 years, it's just that you may not have to have the asset for 10 years. And so people are still going to be operating in the industry, more than likely, because of the way that people typically structure things, they're not going to be setting things up to where they're, you know, just going to be churning and burning stuff later on down the road. Now, that's a loophole inside of the program that people can take advantage of, and, but in even inside of that, if people are utilizing that in order to be able to, to buy depreciating assets, so I got a gentleman that's locating a helicopter dealership in an opportunity zone, and he's going to be buying helicopters depreciating the helicopters, and then selling them after his fun turns 10 years old. And there's nothing wrong with that. And in the meantime, we've accomplished what the legislation was trying to do. He located a helicopter dealership in an opportunity zone. And so it's generating that it's generating the investment, it's generating the activity, which was ultimately what Congress wanted to see. That's exactly right. So the entire point of an opportunity zone is to bring capital into blighted areas to help turn them around. So yeah, I mean, if you're going to spend the money to put a helicopter dealership and attract the types of customers that are going to go to a helicopter dealership, you're going to help start to turn around a corridor, and it's going to have a bigger impact above and beyond that one side. So Ashley, talk me through what it would look like to jump in on an O Z today? Do I get the same benefits that I would have had back in 2021? No, you're going to so there's three main benefits in the zone? Is it first you get to defer your taxes until December 31 2026. And so that, you know, literally every day that passes, that benefit is shrinking, because it's just a time value of money benefit. Now, the true benefit of that delay is that it gives us time to do other tax mitigation techniques. So don't discount that even if you know we get into 2025 and then ultimately into 2026 because you have to put
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Would it in in defer it in order to get the big benefit, which is that step up and basis, the fair market value, which is still there. Now, the second benefit that went went away in 2019, and 2021, were that you're going to pay the taxes in 2026. And if you were invested for either five years or seven years, you got a 10%, or 15% reduction when you went to pay those taxes. And so that's now gone. But when you compare that to the step up and basis to fair market value, it's literally a rounding error. And so that one's gone away, it'll probably come back. Once we get things normalized after the election year, I think that we'll be able to get some legislation through to expand the program to extend it out. And that'll come back into it. But right now that's gone. Yeah, it's, uh, I mean, the biggest benefit is obviously avoiding the capital gains tax, right. I mean, that's, that's, that can be huge, because you've got some of these guys that are, you know, they've been doing 1031 exchanges for decades, right. And that's the only option most real estate investors have ever had. It's just continue the 1031 exchange, you know, pay the piper later, right, you just roll 100% of your basis, and, you know, gains into the next project, when you might have 10 million $20 million of capital gains. And if you're paying 20%, on $20 million, there's a lot of people that are going to try and find a way to never pay those taxes. Well, the other significant thing is that, you know, so there's, there's this whole thing of 1030 ones is like, Oh, well, I'll just my I'll get the step up and basis to fair market value when I die. The problem is that you get to step up and basis the fair market value when you die. And nobody's talking about the fact that the lifetime exemption amount drops down to 10 million bucks and 2025. And so if you've got a $10 million dollar net worth, then when you die, anything above $10 million, your estate is going to have to write a check for 40% of that amount within 180 days of your death. And so if you've got this massive 1031 portfolio, that you just been kicking that tax can down the curb, then ultimately, it's going to get valued as of the date of your death, and you're gonna have your state's gonna have to write a check for that within 140%, within 180 days, opportunity zones are actually the exact opposite. So when you put money into an opportunity zone, instead of when you die, it goes in at fair market value when you die, it's just the amount that you put into the fund originally. And so if you put a million bucks into your qualified Opportunity Fund, it's a million dollars that goes against your lifetime exemption amount. So they effectively work is like a poor man's irrevocable trust for purposes of freezing us your estate value too, which is just kind of an added benefit. And your your estates going to step into your shoes, and so they're going to be able to sell it before 2047 and not pay any capital gains on it. Yeah. Which I mean, can you imagine what your family would have to go through if they all of a sudden had to pay 40% in taxes, I mean, that's most families do not have that in cash, right, which means they are fire selling the portfolio, or they're having to take out a massive loan against it in order to pay that. It's, that's a tough situation to be in. Yeah. So I mean, in people that are anywhere near a $10 million net worth really need to be getting intentional with their estate planners, and with their financial professionals to look at that and to evaluate, because if you're at a $10 million portfolio right now, realistically, when you die, it's probably going to be double that. And so you're talking about potentially $10 million, that's going to be subject to estate tax. And, you know, you're talking about a $4 million, check that you're going to have to write to the government. And so if you haven't gotten really intentional about planning that out, we we've got some techniques that we help people do, where we call it generational liquidity, where we actually use the equity in their real estate in order to come up with life insurance policies that will have substantial, you know, checks when when you die, but they also build cash value, so that that way, you can use them as a financial asset as well. But, you know, it's those types of things that you need to be, you know, talking with your professionals about and really getting intentional about, hey, listen, what's going to be the effect of some of these things that are changing in 2025? Yeah, and look, there's really two different ways to go about finding these opportunities or taking advantage of opportunity zones, right. It's going out and finding your own property, or investing in a fund. I know you've been working on a fund. We were talking about that last November when I want to talk about that here in a second. But let's talk about finding your own deals. You know, when when the maps were first created, we lived in a very different world than what we live in today. Right? I mean, there's there's properties in East Nashville that are multiple, seven figures that are sitting in an opportunity zone, it doesn't make sense. And then there's other properties where you can see it's clearly on a blighted core.
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corridor, not in an opportunity zone. So what are your thoughts on that? Do you think that they will re do the maps at some point? How does that work? Yeah. So inside of the legislation that's currently pending, if it goes through which it's in, I don't know that it will go through in the exact form, but it'll probably be in some type of form. What they said is, is it any, any census tract that's above 130% agi at the time of passage gets grandfathered in. So those zones that are like you're talking about, they'll get grandfathered in if you've done or already started a project in them. And then for the ones that get grandfathered in, they're going to the governor's will be able to re elect new opportunities on census tracts to replace those. And ideally, there'll be going after low income census tracts as of the most recent census, because they did this, they passed this thing back in 2018. The last census they had was 2010. So all of the census tracts that are Ozs are based upon 2010 census information. And so obviously, that's changed and changed drastically. The other thing was, is that they were a little bit loose, because it's the first time they had done it. And so you got to designate low income tracks, or you could put adjacent tracks into. And so what ended up happening was, is that there were some nicer stuff that got designated, that will get grandfathered in, it will open the door to be able to create new ones, which will be really exciting because now we'll have fresh, you know, a fresh places that people can do deals. Now love it. All right, let's talk about your fund. What made you decide to go and start your own fund? And what are you guys focused on? Yeah, so you know, and it was basically that I saw people that were, you know, they were like, Hey, listen, I'm not really keen on some of the stuff that's out there. Plus, I was like, You know what, I'm crazy not to take advantage of this myself. So I had a mobile home park I bought sold flipped and dealt with mobile home parks kind of all coming through while I was doing mergers and acquisition was like my side gig. And my side hustle, if you will. And I was like, you know, I could either invest a whole bunch of time and energy into kind of taking this mobile home park to the next level. Or I could sell it to one of these people that are coming out of the woodwork to try and buy this thing. I could take the capital gains from their seed my own fund, then be able to go out and to partner up with other capital gains, investors, you know, lever up my money through that, and then go out and do really cool deals inside of opportunity zones. And so we did and it's been awesome to, you know, the deals that we've been able to do, we've got a seven and a half acre, tiny home project that's on the water in Beaufort. So literally, it's like three mile marsh views. And because I kind of had some transparency and was one of the early adopters, I knew where the, you know, the primo Ozs were and so I just started going and driving them. And I found this deal down in Beaufort on the water. I was like, Man, this is fantastic. We're doing this, I went down to Puerto Rico because 98% of the islands and opportunity zone, found some guys that were doing a hotel deal, we made a lead investment into that. So we got three hotels in Puerto Rico. And then I really love the Port St. Joe opportunity zone. And so we we we ended up buying a boat and RV storage down there. We've got a piece of property out here outside of Charlotte that's in Wadesboro, where we're going to be doing a boat and RV storage there as well. And then what I really like to our Airbnb s so almost complete Airbnb s are stuff that we can Airbnb. And so I've got one lined up in Georgetown, South Carolina, that once again, it's on the water, and we've got some more that we're working on. I'm actually at a project here up in the North Carolina mountains. And we're turning this into a retreat slash kind of family compounds for our investors. And it's, it's really cool because it's basically kind of enabled me to do the stuff that I really am passionate about and that I want to interact with. And so it paved the way to do that. And the folks that are investors are like, hey, you know what, I want to kind of come along for that ride you got you do some really cool stuff. I love your YouTubes you know, videos that you do. Let me let me kind of jump in there with you. It's been fun. Yeah, I love that man I've been I've been, you know, tossing it around in the office hear a little bit about you know, starting a fund for over a year. Now at some point, we're just gonna have to do it. So it's awesome to hear that you guys are crushing it with that. We will we'd love to help you out one of the so this is kind of interesting to what you ought to do. If you're going to set up a fund you're going to end up having to do all of the documents and the PPM and getting all the investors structure in place. And you know, you may not want to just do Z funds like I do, but you could set up a regular fund and then we could set up a parallel opportunity zone for
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On, so that that way, when you find a nosy project that fits your investment thesis, you dump it into the Ozy fund. And you can even have your regular fund be an owner inside of the Ozy fund, it just won't get the tax benefit. But to the extent that you want to give some of those folks the taste, and in Yeah, it's fairly easy to do. So we'd love to help you out with that, or anybody else that's interested in kind of doing something similar. Yeah, I love that. We're definitely gonna have to talk about that. Ashley, thanks for coming on the show. Man. This was action packed. I'm gonna have Ozy proz.com/cobble in the show notes for everybody. But where can they find you on social to go follow you? Yeah, so probably the best one. And if everybody could do this, it'd be awesome for us youtube.com/ozy Pros. And, you know, hit that subscribe button. Everybody knows that the algorithm loves that loves the traffic. We've got, you know, fun videos, where we show people how to do hunting, how to do kind of outdoor stuff, how to do tax mitigation in the context of that. And so basically, like all the cool crap that I like to do, we've tried to document it and and show people how they can do the same thing and save money in taxes. And then we got some instructional videos there too, that if you want to get into the brass tacks about hey, man, how do I do these tax forms? We got a crap ton of information out there that people can go and find on on YouTube. That's Ozy proz.com. Awesome. Well, it actually thanks for coming on the show. Thank you all for joining us today and we will see y'all in the next one. Thanks. This episode of the commercial real estate investor podcast is brought to you by cre launch Pro. This online commercial real estate program is designed to take you from beginner to pro commercial real estate investor with access to all of my courses, our online community and monthly group coaching calls. Learn how to confidently buy your first commercial property today at www dot c r e launch pro.com
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