1. Qualified Opportunity Zones
Korb Maxwell
Ruben Alonso

2. AltCap Certified CDFI Kansas City Metro 5X NMTC allocatee ($213MM)
$200MM deployed
$165MM active portfolio
$8MM small business & micro loan portfolio
Small business development programs

3. Why Opportunity Zones and Why Now?
52 million Americans (1 in 6) live in economically distressed communities1
Prosperous
Distressed
1 - Source: EIG’s “Distressed Communities Index”

4. …and distressed communities are being left behind
Cumulative change since 20001
1 - Source: EIG’s “Escape Velocity”

5. Opportunity Zones are an innovative, flexible, and bipartisan solution for catalyzing private sector-led economic growth
Opportunity Zones were established by Congress in the Tax Cuts and Jobs Act of The new provision is based on the bipartisan Investing in Opportunity Act, which was championed by Senators Tim Scott (R-SC) and Cory Booker (D-NJ) and Representatives Pat Tiberi (R-OH) and Ron Kind (D-WI) and attracted nearly 100 bipartisan cosponsors. Economic Innovation Group (EIG) originally developed the concept in a 2015 working paper authored by Jared Bernstein and Kevin Hassett.

6. Opportunity Zones aims to connect low-income communities with much-needed capital
Capital – U.S. households and corporations were sitting on an estimated $6.1 trillion in unrealized capital gains at the end of 2017.
Connect – Opportunity Zones offer a frictionless way for investors to dedicate all or a portion of their winnings to seeding the next generation of enterprise in distressed communities all across the country. In exchange, investors get a graduated series of federal tax incentives tied to long-term holdings.
1 - Source: EIG analysis of the Federal Reserve’s Survey of Consumer Finances and Financial Accounts of the United States

7. 3 Tax Incentive Benefits
Deferral
of Capital Gain
Partial Exclusion
of Deferred Gain
Exclusion
of Additional Gains
Time value of money – Deferral of capital gain lasts until the earlier of:
Date the investment is sold or exchanged; or
December 31, 2026
Gain recognition in 2026 (or at earlier disposition)
Lesser of (i) amount of deferred gain or (ii) current FMV
Less: the taxpayer’s basis in the fund
Amount excluded:
10% if held for 5 years before 2026 or earlier disposition
15% if held for 7 years before 2026 or earlier disposition
If Qualified Opportunity Zone Fund (QOF) interest has been held for 10 years, additional gain realized on disposition of OZ Fund interest (above the amount recognized in 2026) is tax free
Presenter: Genni
10-15%
100%
Up to 8 years of deferral
5-7 years
10+ years

8. Key Terms QOZ Qualified Opportunity Zone
An economically distressed census tract designated as a QOZ by the U.S. Treasury.
QOF
Qualified Opportunity Fund
An entity classified as a corporation or partnership in which the investors reinvest their capital gains realized in the 180 days prior to the investment.
QOZB
Qualified Opportunity Zone
Business
An entity classified as a corporation or partnership that is owned by a QOF that, among other things, operates the qualifying business.
Presenter: Genni
QOZB Property
Qualified Opportunity Zone
Business Property
Tangible property purchased in 2018 or later from an unrelated party, the property is used within an opportunity zone, and the QOF/QOZB either has the original use or has substantially improved the property.

9. Basics of Qualified Opportunity Fund (QOF)
Timing
Assets
Testing
Types
180 days from date of capital gain event to reinvest into a QOF
Fund must hold at least 90% of assets in QOZB Property
Can hold qualified property directly, but generally more favorable for Fund to own a QOZB, which is a lower-tier partnership or corporation
Twice per year
Fund must be domestic corporation or partnership (cannot be a disregarded entity)
No limit on the # of QOFs that can be created
QOZB Property must be purchased by Fund in 2018 or later for cash.
QOF
Capital gain realized by flow-through entity (partnership or S corp), owners have additional 180 day window beginning on last day of entity’s taxable year
Presenter: Brian
Example
$10 million sale
$10m sale results in $3M gain, only $3M gain needs to be invested to obtain full QOZ benefits
For flow-through entity gain, if calendar year partnership sells a capital asset on May 1, 2018, the partnership and the partners have until Oct 28, 2018 to invest. Partners have additional window between Jan 1 and Jun to invest in QOF
No tracing of funds, money used to fund QOF I does not have to be the same money generated in the sale.
Unlike a 1031 like-kind exchange, a flow-through entity making the sale does not have to be the entity that reinvests the capital gain proceeds (partners can go their own way).

10. 70% Tangible Property Test
Qualified Opportunity Zone Business (QOZB)
Tests
70% Tangible Property Test
Substantially all (70%) of its tangible property (whether owned or leased) is QOZB Property
Intangible Test
A substantial portion of its intangible property must be used in the active conduct of its business in an Opportunity Zone
Gross Income Test
At least 50 percent of its gross income must be derived from the active conduct of a trade or business [in an Opportunity Zone]
5% NQFP Test
No more than 5 percent of the average unadjusted basis of its assets may consist of “non-qualified financial property” (NQFP)
Presenter: Genni
No Sin Business
Cannot be a golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other gambling facility, or any store the principal business is the sale of alcoholic beverages for consumption off-premises

11. Substantially All Test
QOZB Property Tests
New Property Test
20% Related Party Standard
It is acquired by purchase from an unrelated party (using a 20% related party standard) after December 31, 2017
Qualifying Asset Test
Original Use: The “original use” in the QOZ commences with the QOZB OR
Substantial Improvement: The QOZB substantially improves the property
Presenter: Pat
Substantially All Test
During substantially all of the holding period for such property, substantially all of the use of such property is in an QOZ.

12. Substantial Improvement Test
Original Use “OR” Substantial Improvement
Original Use
The “original use” in the QOZ commences with the QOZB. or
Substantial Improvement Test
Property is treated as “substantially improved” if, during any 30-month period beginning after the acquisition of the property, additions to basis of the property exceed an amount equal to the adjusted basis of the property at the beginning of such period.
Presenter: Pat
Genni, explain the practical application of this. Can get benefit of OZ by selling to a fund and still controlling 20%. Sell building at
Business practice of lower cap rate.
Land is ignored for purposes of determining substantial improvement. Under a revenue ruling released at the same time as the regulations, the IRS concludes that where there is a purchase of land and an existing building, only the amount allocated to the existing building must be “doubled”

13. Standard Deal Structure
Fund Investors
- Non managing members -
Sponsor
QOZ $$
QOZ $$
QOF I, LLC
[DE- LLC]
- managing member -
JV Partner
Can be another fund or fresh equity
Presenter: Brian
Potential Fees to Affiliated Sponsor:
Development Fee: [__]% of total project cost.
Acquisition Fee: [__]% of Property Purchase Price.
Property Management Fee: Mkt. terms.
Asset Management Fee: [__]% of collected gross revenue.
Finance Fee: [__]% of aggregate indebtedness.
Potential
Lender
QOZB, LLC
[DE – LLC]
QOZB Property 13

14. OZ Incremental Benefit
23.8% Tax Rate
4 Year
5 Year
7 Year
12/31/2026
10 Year
Standard After Tax IRR
6.00%
Incremental OZ Benefit
1.44%
2.08%
1.95%
1.71%
3.08%
OZ Investment IRR
7.44%
8.08%
7.95%
7.71%
9.08%
Percentage Increase
24%
35%
32%
29%
51%
1 - Table Source - Novogradac & Company (

15. Kansas City Opportunity Zone Mapping

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