Cornerstone

Cornerstone offers multiple Opportunity Zone Funds located throughout the United States through its FINRA member broker-dealer.

What is a Qualified Opportunity Zone Fund?

A Qualified Opportunity Zone Fund (“QOZF”) is an investment opportunity that may present significant tax savings and potentially higher after-tax returns than traditional investments. Created by the Tax Cuts and Jobs Act of 2017, the Opportunity Zone program is designed to incentivize long-term capital investment to disadvantaged urban and rural communities nationwide. The program provides tax incentives to investors who invest capital gains into a Qualified Opportunity Fund that deploys capital into a designated Qualified Opportunity Zone.

Get your free summary of available Opportunity Zone Funds:

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I am interested in information regarding opportunity zone funds.

Are you an accredited investor?

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The Security and Exchange Commission (SEC) defines an accredited investor as an individual with a net worth of at least $1 million (excluding the equity in your home) or net income the last two years of $200,000 (if joint income with spouse $300,000) and with a reasonable expectation of equal or greater earnings in the current calendar year. If net worth is above these amounts, then you are considered accredited automatically.

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What are the benefits?

The tax incentives for investors in are mainly in the following three categories:

Tax Deferral

When an asset (real estate, stocks, bonds, etc.) is sold and the capital gain from that asset is invested into a QOZ fund or business, then the tax on the gain will be deferred and not recognized until the earlier of the date on which the OZ investment is sold or December 31, 2026.

Step-up in Basis.

Step-up in basis. The basis of the invested gains is increased by 10% if the investment is held at least 5 years and by an additional 5% if held for at least 7 years, thus excluding up to 15% of the original gain from taxation at 7 years.

Tax Free Growth

Any appreciation on the invested gains while in the Qualified Opportunity Fund is excluded from taxable income if the investment is held for at least 10 years.

A Limited Time Window of Opportunity:

Unless Congress extends the program, investors have until December 31, 2019 to roll over capital gains and enjoy the full 15% capital gain exclusion. Investments after 2019 and before December 31, 2021 would be able to exclude 10% of the invested capital gain.

Where are Opportunity Zone Locations?

Opportunity zones (“OZs”) have been designated in every U.S. state, Puerto Rico, and the Virgin Islands. An Interactive map of designated zones can be found at: Opportunity Zones

Who is Eligible?

Eligible investors include any taxpayer that has capital gains (from real estate, stocks, bonds, etc.…). Investors must invest their capital gains in a “Qualified Opportunity Zone Fund” within 180 days of a realized capital gain event. If the investment is made through an investment fund or a private REIT the investor must meet the net worth or income requirements for an “accredited investor” per the 1933 Securities Act. The Security and Exchange Commission defines an accredited investor as an individual with either $1 million in net worth (excluding the equity in your principal residence) or net income for the last two years of $200,000 or greater ($300,000 if spouse has income) with a reasonable expectation of such earnings in the current year. If you do not meet this definition of an accredited investor, please notify us immediately and disregard this message and its contents.

OZ Fund Requirements:

Qualified Opportunity Zone Funds must hold at least 90% of assets located in OZs or stock/interest in qualified opportunity zone businesses (“QOZB”). QOZB’s are trades or businesses in which substantially all of the tangible property owned or leased are located in qualified OZs. Current identified investment types in OZs are commercial real estate development or renovation, opening new businesses, expansion of businesses into OZs, or larger expansions of businesses already located in OZs.

Cornerstone OZ Fund Offerings:

Along with our broker-dealer, Cornerstone is reviewing a number of QOZ funds with certain funds that diversify investments over multiple opportunity zones and other funds that invest in a single opportunity zone asset.

QOZ Fund vs. 1031 Exchange:

The difference between 1031 and opportunity zones are numerous and significant.

December 31, 2026 End Date

While IRC section 1031 exchanges allow for a continues deferral of both capital gain and depreciation recapture until either a cash out event of a step-up-in basis at the investor’s death, the original capital gain invested into the qualified opportunity zone fund is only deferred until December 31, 2026--albeit with a step up in basis of 10% or 15% depending on the length of the investment.

Exposure to Depreciation Recapture

For real estate related gains invested into a QOZ fund, there may be exposure to depreciation recapture at a tax rate of 25% in the year the down leg real estate is sold even though the capital gain in invested into a QOZF.

Tax Free

Unlike a 1031 exchange, if the QOZ fund investment is held for 10 years, the profit from the opportunity zone investment may be taken tax free. This does not mean that the tax liability from the invested capital gain in the opportunity zone is completely deferred as at least 85% of that tax bill must be paid in 2026.

Pass-Through Entity

Unlike a 1031 exchange, the taxpayer that disposed of the relinquished property does not have to be the same one that acquires the replacement property in a QOZ fund. Thus, partners who receive gains from a pass-through entity may reinvest the gains as if they had received them directly. Furthermore, unlike in a 1031 exchange, investors in a QOZ fund have no 45-day identifications window, and investors who are reinvesting gains from a partnership have 180 days from the end of the partnership's taxable year, not from the date of the sale.

Tax Bill

Lastly, it must be taken into account that the funds for paying the tax bill may still be invested in the opportunity zone in 2026, especially, if intending to keep the investment for 10 years to achieve tax free status. Accordingly, investors may need to plan to cover their tax bill using other funds unless there is a tax-free distribution from the fund from a loan refinance or a partial liquidation.

Calculate your potential after-tax return:

Capital Gain
Target IRR
Annual Preferred Return
Capital Gain Tax Rate
Ordinary Tax Rate

Result Summary

With OZ Investment	$2,223,698
Traditional Real Estate	$1,474,863
Tax Savings	$748,835

With Opportunity Zone Investment

Year #	After Tax	Before Tax
Investment	500,000	500,000
1 (2019)	18,900	30,000
2	18,900	30,000
3	18,900	30,000
4	18,900	30,000
5	18,900	30,000
6	18,900	30,000
7	18,900	30,000
8 (2026)	(82,250)	30,000
9	18,900	30,000
10	18,900	30,000
Exit Capital	2,135,848	2,135,848
Total Preferred Distributions	87,850
With OZ Investment	2,223,698

Traditional Real Estate Investment (w/o 1031 Exchange)

Year #	After Tax	Before Tax
Investment	381,000	500,000
1 (2019)	14,402	22,860
2	14,402	22,860
3	14,402	22,860
4	14,402	22,860
5	14,402	22,860
6	14,402	22,860
7	14,402	22,860
8 (2026)	14,402	22,860
9	14,402	22,860
10	14,402	22,860
Exit Capital	1,330,845	1,627,516
Total Preferred Distributions	144,018
Without OZ Investment	1,474,863

Risks:

OZ fund investment involves typical risks of traditional real estate investment including illiquidity and concentration risks associated with local markets. Investors must read and understand all risk disclosures in the applicable full disclosure private placement memorandum (PPM) that would accompany any. Potential risks relating to each investment in a QOZ fund or a QOZ private REIT are disclosed in a private placement memorandum that must be read by the investor prior to making an investment decision. These risks include but are not limited to:

Illiquidity (there is currently no secondary market);
Tax status risk which may result in immediate tax liabilities, including penalties;
The fact that substantial fees associated with the purchase of the investment may, in certain cases, outweigh the tax benefits;
The significant tax risks for acquiring interests as replacement property;
The risks of using leverage in real estate;
The investment is speculative and involves a high degree of risk;
The risks associated with fractionalized ownership in real estate and investment contracts as securities;
Property appreciation is not guaranteed;
The potential for loss of principal invested; and
Other certain risks disclosed in detail within the Private Placement Memorandum that should be reviewed before investing.

Securities offered through WealthForge Securities, LLC--Member FINRA and SIPC.

Cornerstone Real Estate Investment Services is not controlled by or a subsidiary of WealthForge Securities, LLC.

Disclaimer:

Please note that the information above is for informational purposes. An offer to buy or sell or any solicitation can only be made to qualified accredited investors through a prospectus or private placement memorandum, which is always controlling and supersedes the information contained herein in its entirety. All investments have inherent risks. Potential risks relating to each investment are disclosed in a private placement memorandum that must be read by the investor prior to making an investment decision.

An investment in a QOZ fund involves a high degree of risk. You should purchase only if you can afford a loss of some or all of your investment. You should carefully consider the information set forth in “Risks” above and the corresponding section in the Private Placement Memorandum (PPM) of the particular offering that you are examining. This type of investment is not suitable for all investors.

Please also note that this opportunity is being presented to you based on your representation to us that you are an accredited investor. The Security and Exchange Commission defines an accredited investor as an individual with either $1 million in net worth (excluding the equity in your principal residence) or net income for the last two years of $200,000 or greater ($300,000 if spouse has income) with a reasonable expectation of such earnings in the current year. If you do not meet this definition of an accredited investor, please notify us immediately and disregard this message and its contents.

This does not constitute an offer to buy or sell any security. Investments in securities are not suitable for all investors. Investment in any security may involve a high degree of risk and investors should review all “Risks” before investing. Investors should perform their own due diligence before considering any investment. Past performance and/or forward looking statements are never an assurance of future results. Investment products, Insurance, and Annuity products are not FDIC Insured/Not Bank Guaranteed/Not Insured by any Federal Government Agency/May Lose Value. Securities offered through WealthForge Securities LLC. Member FINRA / SIPC / MSRB.