Even more innovative than our plans to capture this emerging industry, is the funding strategy behind it.
Friends & Family
These are our first investors and they are able to enjoy the tax relief offered through section 1202 (Small Business Stock Gains Exclusion) of the Internal Revenue Code (IRC). After 5 years, capital gains from their investments can be excluded from federal tax*.
* Gains can be reduced or eliminated altogether, subject to certain limitations.
Based upon the size scope of our initiative; 5R is leveraging the tax incentives available through the 2017 Tax Cuts and Jobs Act (TCJA) to attract “Opportunity Fund” investments. With more than 2 trillion of unrealized gains sitting on the ledgers of investors and corporations (Economic Innovation Group), the IRS created significant incentives for re-investment into Opportunity Zones including:
Deferral of capital gains tax through 2026
Exclusion of up to 15% of the deferred gain (10% after year 5, with an additional 5% after year 7*)
* requires gain to be realized and invested into an opportunity fund by December 31, 2019
After year 10, the program provides for “an increase in basis of the QOF investment equal to its fair market value on the date that the QOF investment is sold or exchanged” (IRS). In simplified terms, this means that all gains from the investment are “tax free".
Note: All but 5 states have state tax programs which mirror the federal program
In order to recognize the full benefits of this program, a minimum ten year (Opportunity Fund) investment is required. This makes these investments perfectly suited to 5R’s growth strategy, offering tremendous benefits to these investors. These funds will be primarily be utilized to acquire the Opportunity Zone properties (QOZP) needed to support our operations but as an added incentive; 5R is also including an interest in our operating unit (the high growth Opportunity Zone business (QOZB) which will operate on these properties). The expected return on investment (ROI) from this should dwarf those of a traditional (real estate only) investment, making for a uniquely profitable overall investment.
It should be noted that ALL capital gains are eligible for this program, even those from private individuals with smaller amounts to invest (which normally wouldn’t justify establishing a fund on their own). To facilitate this, 5R is creating our own Fund. This will facilitate that anyone can put their gains, large or small, into this fund and enjoy the benefits of the program while mitigating costs to manage the 5R Opportunity Fund (keeping them at reasonable levels).
Finally, due to the complexity of rules and IRS tests necessary to verify compliance; 5R has secured the advisory services of PKF O’Connor Davies, LLP with respect to this program. These reputable advisors will help us to ensure our company’s compliance while also facilitating 5R optimizing our strategies to maximize benefit for our investors** and the company.
** Advisory services are provided are to 5R USA, Inc.. Investors should seek their own advisement through their tax and/or legal professionals.
5R; We’ve got this