We have seen an amazing rally in the stock market for almost ten years, and many experts now believe we are due for a major correction in the value of stocks across the globe, but particularly in the United States. In fact, the market is largely flat since the beginning of 2018. To add to this risk, the “experts” are predicting that any correction that does happen in the near term is coming this summer.
With the DJA (Dow) with only a .14% (yes 14/100ths of a percent) return year to date as of May 25, 2018, the time may be right to begin to move money.
One of the major hold-ups in people moving out of the market has been the built-in gains they have accumulated over the past several years – which would cause a potentially massive tax bill when they “sell” and re-invest into something else.
As part of the most recent Federal tax legislation, there is a newly created tax incentive called “opportunity zone investing”. The Tax Cuts and Jobs Act provided for this benefit, and it could be a huge benefit for you. Here is an example of how it works:
- In 2012, you invested $250,000 into the “stock market” (this could be any investment – stocks, bonds, mutual funds, ETF’s etc.)
- As of today, you have $750,000 in your account – $250,000 of the original investment and $500,000 of largely or entirely untaxed gains.
- If you sell – you will need to pay long-term capital gains on $500,000 which could be as high as 40% if you are in California, or $200,000.
- If you invest the $500,000 of untaxed gains into an opportunity zone fund, the gain is not taxable, and you don’t have to pay taxes today at the Federal level for sure and potentially even the state level (consult your state laws or ask us!)
Now let’s assume you invest the $500,000 into the Manorshare O-Fund to invest in Airbnb property and in 10 years that investment is worth $1,500,000 in 10 years.
- You pay NO TAX on the additional $1,000,000 of gain in the O-Fund at the Federal level and potentially the state as well.
- Your initial deferred gain of $500,000 is now only taxed at 85% of the gain (15% forgiveness), so you save taxes on that as well.
- This could increase your after-tax rate of return by up to 74% (depending upon your tax rate)
Simply put, this is the first time anything like this has been available to investors and may be the right time for you to consider a change. Please consult with your legal, financial and tax advisor(s) and contact us if you have any questions.