Last week, I unveiled a mind-blowing tax loophole for eliminating passive capital gains

But if you're raking in profits from stocks, bonds, or crypto, I've got an even simpler strategy that's just as powerful

Prepare to take notes, because this is a game-changer First things first: portfolio income.

This is the money you make from selling stocks, bonds, or crypto. Short-term, long-term, doesn't matter.

If you've got gains, this thread is for you.

You had a capital gain & made an Opportunity Zone investment

How do you tell the IRS about all of this?

Intro to OZ Tax Reporting: Navigating Opportunity Zones (OZ) investing

Key IRS forms 8949 & 8997 are your tax reporting anchors. Let's dive in! IRS Form 8949 Explained

Form 8949 is where you report capital gains/losses & start your OZ journey. It's where the gain you'll defer will show up for years to come

Opportunity Zone investing is HIGHLY tax advantaged

I have spent several years working on real estate investments in this tax structure and I'm sharing the best pieces of the high level strategy right here

In this thread I have several years of experience as an OZ fund manager and developer

I also have my own personal OZ fund

Disclaimer: I am not a CPA or tax attorney. Always consult professionals before taking action.

Founders Square Apartments

1st deal we ever did in Bishop Ridge was long before 'Bishop Ridge' existed

Bought & sold the property before OZ legislation even existed. We were pioneers in this neighborhood in 2014

The story of 50%+ IRR and several million in profit is below The 61-unit property was a dump in 2014...every unit was "substandard"

37,550 rentable square feet, 59,800sf lot, and 1963 construction with a brick facade

The building had an outdated Chiller/Boiler HVAC system and a failing roof

To be a successful "value-add" real estate investor, the first step is buying at the right price

In order to do that, you need a mastery of 5th grade math and a willingness to work hard for 30 minutes

Here are the steps We need to figure out a few numbers which will lead us to a purchase price:

▪️Cost of the improvements needed
▪️Rents achievable after building is improved
▪️Expenses to operate the building after it is improved
▪️Desired Yield

Opportunity Zone Legislation sparked new investment in 3,800+ low income communities in 50 states

The communities averaged below 80th percentile for poverty, median household income, & unemployment

Investment came from 21,000+ individual and 4,000 corporate investors

More ⬇️ I know firsthand (as a real estate developer) about the impact the Opportunity Zone program can have on a neighborhood

We bought this OZ property vacant after all the copper was stolen and fire had occurred

We wouldn't have taken the risk but for OZ legislation

Closed the sale of our biggest deal in December 2021

Deep into 8 figures

Here is some dirt…there were a lot of twists and turns

Started with an HOA and ended without one. This is called a fractured condo deconversion

More below A friendly broker brought us the deal off market in 2017

We knew the strike price and we liked it…a lot

Offered the broker equity to keep it quiet and got it tied up quick

In 2015, I signed an LOI for a 116-unit apartment building on my trunk only 3 hours after it was listed on MLS

18 months later I sold it for life changing money

Here's how I bought it and made it work: I am always on the hunt for the next deal

One of the ways I search is on MLS

I always dream that a residential broker will misprice a big apartment deal

Over $100,000,000,000 of Equity has gone into Opportunity Zone Funds since 2018

Renovating and Developing new Real Estate worth $250B+ in over 4,000 low income census tracts nationwide

Here's a 🧵 on the history and intent of the program Opportunity Zones were conceived in the midst of a deeply uneven recovery that followed the Great Recession

Designed to help meet the needs of communities traditionally deprived of investment dollars

Dave Hoskins threw a heckuva breaking ball

His fastball and curve were also pretty good and he could hit

We remember his story in my family and I thought I would share it

Dave Hoskins was the first African American to play in the Texas League's modern era Dave Hoskins began his professional career in 1942 with the Ethiopian Clowns

In 1944, 3 black players got a tryout with Boston’s 2 clubs, the Red Sox and Braves. Hoskins was one of the players

The other two were Jackie Robinson and Sam Jethroe

I think the classic RE cycle chart is useful for context

But imperfect when you think about strategy for raising & deploying funds

More in thread 🧵 Efficient markets are for textbooks and business school classrooms

Even the S&P 500 (logarithmic) year chart shows STEEP drops and sharp recoveries

Want to be an OZ investor?

Think through 2022 investments

Maybe you are expecting a K-1 showing a capital gain from February 2022 (when the market was white hot)

Instead of paying tax April 15, you can put the money into an OZ fund and defer the tax to April 2027 In addition to the 4 year deferral on the taxes owed now

You'll get mindblowing tax treatment on the new OZ investment

Assuming that you hold it for 10+ years, you'll get to step up the value to market when you sell. No depreciation recapture & no capital gains

Big challenges with Real Estate investment today

▪️Skinny Deals
▪️Taxes on sale profits
▪️Depreciation Recapture

Opportunity Zone investing (& good GPing) solves this & a fund structure can amplify all the benefits

January 1 is a great time to consider this strategy

Thread 👇 Opportunity Zone investing is VERY tax advantaged. It has been called a tax shelter...

I've seen some people have 💡💡moments about this but not enough people “get it” yet

The 10-year basis step up combined with cost seg and bonus depreciation is wild

My daughter told me the other day that I should take less showers to save the planet

I taught her how I fix toilets flaps and busted shower manifolds instead

I love saving water in apartment buildings

Let's translate water savings into dollars in the thread ⬇️ During DD we ask for a year of utility bills

We've seen deals that have average annual usage over 500 gallons/unit/day

After implementing water savings we can lower usage to 160 gallons/unit/day depending on the unit mix, square footage, and age of building

In 2012 it famously came out, Warren Buffett was paying 17.4% in taxes while his secretary was paying 35.8%

Tons of the disparity has to do with Capital Gains and managing tax liabilities

5️⃣ tips on managing Capital Gains taxes

// THREAD // 1️⃣ Start with the easiest

You don't have to do anything

One day you'll die

Your heirs will inherit a "stepped-up" basis in your assets equal to the fair market value of the property on the day of your death

The estate tax is a high class problem for a different thread

This Dallas area was blighted, buildings were barely occupied, and developable land had been vacant for decades

Now we're working on 17 multifamily projects

▪️Substantially renovating 282 units
▪️Newly Constructing 500+ units

Opportunity Zone legislation made this possible John and his team at Kunst are doing beautiful historic building renovations in the Over-the-Rhine neighborhood in Cincinnati, Ohio

Opportunity Zone legislation helps him to raise equity

Equity allows him to restore this neighborhood

https://twitter.com/JohnJBlatchford/status/1599781859373699072?s=20&t=hPf6_k4Cjhx0lFVFJMuhZw

Wanna be an Opportunity Zone investor?

It is the most tax advantaged way to invest in Real Estate

There are rules to learn first. A few CANNOT be broken or you lose all of the promised benefits

Don't throw your money in the dreaded BLACK HOLE of OZ investing

🧵 below When you boil it all down, there are two fundamental responsibilities for investors:

1️⃣Realize capital gains through the sale of an asset
2️⃣Invest some or all of those capital gains into a QOF within 180 days

$30 Billion have gone into Opportunity Zone Funds over the past 36 months

2022 will be record breaking

Smart investors are actively harvesting gains to invest in this tax structure

Have unrealized capital gains or a liquidity event soon? Want to minimize tax?

Read this 🧵 I have several years experience as an OZ fund manager and developer. I also have a Captive OZ fund. I’ve spent lots of time spitballing how to most effectively use this structure.

I am not a CPA or tax attorney. Check with them before implementing a complicated strategy.

The most unknown benefit of Real Estate investment in the Opportunity Zone tax structure:

Depreciation doesn’t have to be recaptured when selling after a 10+ year hold

Even for non-RE professionals!!

🧵 below: Just like in other Real Estate investments, since the investor is not a RE Pro, they are limited to using the K-1 losses during the 10 year hold period to offset other passive income

The unused depreciation losses accrue as “suspended losses”

I wear a lot of hats in business but this has turned into the most important one

Seth Bame and I founded Savoy Equity Partners in early 2022 after doing business together for 6+ years and making successful investments for 10 years

We are Texas & multifamily focused We've been in RE since 2005

I started as a mortgage broker and he started in office building brokerage

We were in the RE business through the GFC

That's certainly not a forcefield!

However, it did provide us a roadmap for how to (and not to) operate in a turbulent market

Same deal…different returns

Profit $6.2mm in a normal structure

$11.9mm using the OZ structure 🤯🥳🤯

How is that possible? It's the same deal! It has taken us a long time to dial in our model to distill each OZ benefit to a dollar amount

Let's assume our average investor (30% tax bracket) had a $5.5mm long term capital gain and wanted to put it all into this sample project as an LP.