Opportunity Zones as an Investment for Stock Brokers & Hedge Fund Managers

Stockbrokers and hedge fund managers often have certain expertise, insight, or perhaps an affinity for the type of investments that comprise the majority of their portfolios. The establishment of opportunity zones as part of the Tax Cuts and Jobs Act passed in late 2017 has created a new vehicle for investing in real estate. Yet because the potential pool of investors who may benefit from opportunity zones is anyone who has a realized capital gain, which could collectively translate into hundreds of millions of dollars, we at Primior suggest all brokers and managers investigate the possibilities that opportunity zones present.

The Opportunity

If realized capital gains are invested into an opportunity fund, the tax due on those gains is deferred and reduced depending on how long the investment remains in the fund. Additionally, the earnings that potentially may flow from the opportunity fund investment may be free from tax. Together, these incentives have the power to potentially double after-tax earnings for an investor.

Opportunity Zones

Opportunity zones were created to spur economic development and job creation in recognized low income and economically distressed communities. They exist in every state, which allows stockbrokers and hedge fund managers to work within selected regions if so desired or to simply seek the best perceived opportunity. It is important to realize that the investor need not live, work, or own a business in an opportunity zone. It is only necessary to invest a realized gain into a qualified opportunity fund.  

Qualified Opportunity Funds

A qualified opportunity fund is a U.S. partnership or corporation that will invest at least 90 percent of its holdings in one or more qualified opportunity zones. Additionally, a limited liability company can also organize as an opportunity fund if it elects to be treated as a partnership or corporation for federal tax purposes.

In general, real estate tends to be in the long-term asset class, which makes it a good fit for investment vehicles for investors focused on maximizing gains over longer time frames. Primior can explain how real estate and Opportunity Funds can work for your investors.   

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