Feb 9, 2019, we had the pleasure of Alaine Raven, Business Development Manager of First American
Exchange Company coming to our event to address our interest in comparing 1031 Exchange and
Opportunity Zone (OZ).
Alaine gave us a detail and insightful presentation.
She started explaining the nature of each of the process:
1031 Exchanges is for real property.
Properties involved in 1031 Exchange must be held for investment or in connection with a trade or business but do not have to be similar use.
Many criteria must be met in order to have a fully deferred exchange.
1) Taxpayer must buy replacement property(ies) of
greater or equal value.
2) Taxpayer must reinvest all proceeds from the sale of
the relinquished property(ies).
Timing is also important:
The exchange must be completed by the earlier of:
a) 180 days from the date of the first relinquished
property closing; or b) The due date of the taxpayer’s federal income tax return, together with all
The OZ program is a new investment vehicle created under a provision of the Tax Cuts and Jobs Act of
December 2017. Under the program, investors are able to temporarily defer some capital gains taxes
and potentially eliminate certain other future capital gains taxes when they invest their realized gains in
a Qualified Opportunity Fund (QOF), which is a corporation or partnership that invests at least 90% of its
assets in QOZ property or interests.
Deferral of gain, Partial forgiveness of deferred gain, Forgiveness of additional gains are available under
However, the requirement is that the QOF may not simply purchase and hold the QOZ property or asset,
but must make substantial improvements to that property.
In selecting whether to take 1031 Exchange or OZ, Alaine suggested to us to consider the following:
Current investment maxed out on Depreciation?
No depreciation is available with OZ
NEED competent legal, tax and financial advisors to assist to ensure successful implementation of OZ
As an additional note to our audience, Alaine pointed out that the primary residence exclusion allows
taxpayers to exclude up to $250,000 of gain ($500,000 for married couples filing jointly)
Using primary residence exclusion with 1031 Exchange will bring even more tax savings. This may, for
example, happen when you have an office in your home or own a duplex in which you live in one unit
and rent the other unit.
Or, if you move out of your primary residence and rent it for a couple of years before you sell it, you will
be able to exclude gain using the primary residence exclusion and defer any excess gain by doing a 1031
exchange into another property.
Our audience enjoyed very much her detailed and precise presentation. They were especially impressed
by her meticulous explanation of the each process involved in 1031 exchange, and her comprehensive
consideration of the Pros and Cons of OZ.