Norma’s husband passed away suddenly leaving her with bills, a mortgage, and a lack of financial education to plan for her and her children’s futures.
THE SOLUTION
Norma was referred by a friend to Ilona Friedman and her team at CD Wealth Management. At first, Norma was shell-shocked and she found it difficult to even leave the house. Ilona met with her at Norma’s home taking time to listen to stories about her late husband and what a wonderful man and provider he was. Ilona and her team helped her get organized, going through the bills and looking through insurance policies, financial account statements, and loan documents. Because her husband had a life insurance policy, Ilona helped Norma realize that as a woman in her 50s, she would have enough to allow her to pay off debt, keep the house, provide for her children’s college education, and plan for her early retirement.
In the wake of one of the most difficult chapters of her life, her relationship with Ilona and the CD Wealth Management team is one of the bright spots. Her meetings with Ilona have even become a family affair. Norma now brings her kids to her meetings to help them get a financial education.
Norma is a real client. Her name has been changed to protect her privacy.
Our clients, Tom and Sharon Mansfield, are both successful executives who had grown tired of living in the “rat race” but were not sure what they could do about it. Their jobs allowed them to work from anywhere, but living somewhere outside of the United States seemed like a long shot. They were concerned that their three school-aged children would struggle to finish their education in another country.
THE SOLUTION
During one of the quarterly client meetings with Tom and Sharon, Scott Cohen and the CD Wealth Management team could sense their unhappiness and began a process of discovery about how to achieve their dream of living in a “tiny European village.” Scott helped them look at the the overall health of their financial landscape and showed them that not only could they afford to live in a European country, they could thrive there and still be connected to life in the United States. Together they created a plan to make sure that their three school-aged children would complete their elementary and secondary education from an English language school and created a strategic plan for their future college education. Scott and the CD Wealth Management team also helped Tom and Sharon plan for regular extended visits to the United States to help them maintain their relationships with friends and family.
For Tom and Sharon, their decades-long partnership with the CD Wealth Management team has helped them achieve the freedom to live their dreams and plan for their children’s success.
Tom and Sharon are real clients and their story is true. We have changed their names to protect their privacy.
More and more people are looking to put their personal capital to work in support of society and their communities. And Congress gave them a new way to do just that when it passed the comprehensive tax reform law in late 2017. Among the many changes in the law was a section that encouraged taxpayers to invest in economically distressed communities across the United States and, in return, potentially receive very favorable capital gains tax breaks.
In October 2018, the U.S. Department of the Treasury issued proposed regulations to clarify the tax laws surrounding Opportunity Zones and Opportunity Funds, hoping to reduce uncertainty and encourage investors to get involved. A second set of regulations proposed in April 2019 provided additional clarity, easing many of the remaining concerns and driving increased interest among investors. As a result, we are likely to see the formation of additional Opportunity Funds moving forward.
Rules Vary State-to-State
Some states have yet to bring their tax rules into conformance with the federal Opportunity Zone rules. For example, New York has done so, while California has not.
How It Works
Investors who realize a short-term or long-term capital gain from the sale of such investments as securities, collectibles, real estate or businesses can reinvest those gains in what is called a Qualified Opportunity Fund (QOF). These funds are corporations or partnerships (which may include some LLCs) that invest in businesses or assets in any of the nearly 9,000 low-income communities within the United States or its possessions certified by the U.S. Treasury as Qualified Opportunity Zones (QOZ).
Breaking Down the Benefits
Investing in a QOF may allow you to defer recognition of a capital gain on your income tax return, so long as you reinvest that gain into a QOF within 180 days of realizing it. (There are some exceptions to this deadline.) You then defer recognition of the capital gain until December 31, 2026, or until you sell or dispose of the investment, whichever comes first.
In addition to the deferral, taxpayers can reduce the taxable capital gain by 10% or 15% if they hold their QOF investment for five or seven years, respectively, and the deferral period hasn’t ended. That means to qualify for the 10% reduction, the capital gain would need to be reinvested into a QOF by December 31, 2022, and for the full 15% reduction, it would need to be reinvested by the end of 2024.
Perhaps the greatest tax benefit is reserved for taxpayers willing to make a truly long-term commitment to the investment in a QOF. Any gain realized after the investment in the fund can be considered eliminated for tax purposes if the investor holds the investment for 10 years and then sells it by 2047.
In identifying partners to manage Opportunity Zone investments, it’s important to pay close attention to past discipline in capital allocation.
Looking Out for Yourself
It should be noted that to realize the full benefits of this program, investors must commit to holding illiquid assets for at least 10 years. In addition, some QOFs (1) might hold only a single asset — or multiple assets that may not be well-diversified in terms of industry and geography:
Investing in a QOF
Capital gain on your income tax return
Deferral of capital gain
Generating a majority of gross income from your community
