Virtua Partners Launches Tax Reform-enabled Fund
The fund is designed to invest in the Opportunity Zones created under the Tax Cuts and Jobs Act of 2017.
PHOENIX–Private equity real estate investment firm Virtua Partners has launched what it says is the first Opportunity Zone Fund — that is, a fund that will invest in these designated areas created under the Tax Cuts and Jobs Act of 2017 by taking advantage of the tax savings they were granted under the law.
Virtua Opportunity Zone Fund I aims to raise $200 million. It will primarily invest in residential rental property development — such as multifamily and single-family home rentals — hospitality and office. The geographical focus will be high growth sunbelt markets, such as Austin, Phoenix, Atlanta, Dallas, San Antonio, and Orlando.
What Are Opportunity Zones?
The tax reform measure allows governors of each state to designate Opportunity Zones, which are specific geographic areas eligible for tax-advantaged, long-term investment. Virtua explains that investors in qualified opportunity zone funds receive a basket of tax benefits, including deferral of current capital gains, a tax reduction of up to 15% on current gains, and no capital gains taxes on appreciation if the investment is held for 10 years.
Like 1031s, They Benefit Investors
Virtua also said that under the tax law investors can defer and reduce capital-gains taxes when they reinvest profits into an opportunity zone fund within 180 days following the sale of a prior investment. It is similar to a 1031 exchange transaction yet unlike a 1031 deal an investor does not have to invest the entire previous investment.
Also, investors can use capital-gains proceeds from any asset class — not just real estate — to capture the benefits of the opportunity zone fund provisions.
Co-founder and Principal of Virtua Lloyd Kendall Jr. explained in greater detail on the company’s website about how investors can use these Opportunity Zones.
Here’s how the process works. An investor sells an asset and generates a capital gain. The capital gains from that investment must be reinvested within 180 days into a designated Opportunity Zone (OZ).
If the investment is held, the capital gains liability on the original investment will be reduced by 10% after five years and by 15% after seven years. After 10 years, the new capital gains taxes generated from the opportunity fund investment are reduced to zero.