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New "opportunity zones" give investors big tax breaks


By Jeff Lazerson


What’s up with mortgage rates? Jeff Lazerson of Mortgage Grader in Laguna Niguel gives us his take.

Rate news summary 

From Freddie Mac’s weekly survey: The 30-year fixed averaged 4.37 percent, down four basis points from last week to the lowest level in a year. Thirty-year rates have increased just once in the past 14 weeks. The 15-year fixed rate averaged 3.81 percent, down three basis points from last week.

The Mortgage Bankers Association reported a 3.7 percent decrease in loan application volume from the previous week.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $484,350 loan, last year’s payment was $2 higher than this week’s payment of $2,996 – the first time in years the payment is lower than a year ago.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages at a zero point cost: A 15-year FHA (up to $431,250 in the Inland Empire, and up to $484,350 in Los Angeles and Orange Counties) at 3.50 percent, a 30-year FHA at 3.75 percent, a 15-year conventional at 3.625 percent, a 30-year conventional at 4.25 percent, a 30-year FHA high-balance (from $484,351 to $726,525 in L.A. and Orange counties) at 4.25 percent, a 15-year conventional high-balance (also $484,351 to $726,525) at 4.0 percent, a 30-year conventional high-balance at 4.375 percent, a 15-year jumbo (over $726,525) at 4.125 percent and a 30-year jumbo at 4.75 percent.

What I think: Talk about a whopper of a real estate tax provision that just might work to your advantage!

Under the 2017 Tax Cuts and Jobs Act, investors can get a big break on their capital gains taxes by investing an economically depressed “opportunity zones.”

Officials recently released guidelines for investing one of these 8,761 government-certified zones, or OZ’s, as they’re called. And they were a hot topic at the Mortgage Bankers Association’s San Diego convention, which I attended earlier this week.

Here are some highlights of an excellent presentation by panelists David Leavitt of PwC and Timothy Lee of Signet Partners:

  1. You’ve sold something for a profit that triggers a capital gain tax. The capital gain must be recognized prior to Jan. 1, 2027. A few examples are the sale of real estate, stocks, or a business. Some examples of eligible taxpayers are individuals, partnerships, trusts, corporations and REIT’s.
  2. Within 180 days of the sale, the profit is invested in an Opportunity Fund, which in turn buys real estate in a Qualified Opportunity Zone. Examples of OZ investment funds are tangible property used in a trade or a business that substantially improves the property or stock in a domestic corporation.
  3. You get to defer the capital gain taxes that you owe Uncle Sam until 2026.
  4. You get to reduce your capital gains taxes owed by 10 percent if you hold your profits in this fund for at least five years. For example, say you have invested a capital gain was $100,000 in an OZ. After five years, you’d pay taxes on $90,000. A seven-year hold means an additional 5 percent reduction in capital gains taxes, or taxes on just $85,000.
  5. If you hold that Opportunity Zone Fund Investment for more than 10 years, you have zero capital gains taxes on any appreciation realized when you sell. For example, if you invested $1 million (excluding the capital gains taxes you paid in 2026) and sold it for $2 million 11 years later, no capital gains tax. Holy Mackerel!
  6. You cannot invest in golf courses, country clubs, massage parlors, hot tub facilities, liquor stores, race tracks, gambling establishments, or suntan facilities. Funny enough, no restrictions on cannabis facilities.

Be mindful, there are still lots of unanswered questions regarding these recently released guidelines. I strongly suggest you get counsel from your tax advisor or tax attorney.

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Jeff Lazerson - Mortgage Columnist since 2011