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Does the development of new condo buildings compatible with the OZ incentive?

If you syndicate funds to buy land and develop a new multi-unit condo building in an OZ, is this compatible with the incentive?

  • Valerie Grunduski
    November 16, 2020

    Potentially the underlying requirements are that the property must be located in an Opportunity Zone. If it is a real estate development, then the property must be substantially improved or a new/ground-up development. That said the 10 year hold before a step up in basis could be complicated if you are looking to build for sale condos. In this scenario, gains would likely be triggered far before the 10 year hold period.

  • Brad Cohen
    October 14, 2020

    Yes, but the sale of condos will be taxable.

  • Matthew Rappaport
    October 14, 2020

    Not really. Funds with condo inventory typically want to flip long before the ten-year OZ holding period has elapsed. Funds also don't want to do rent-to-own to ride out the holding period. Condo inventory is not eligible Section 1031 property, so you can't even extend the holding period by doing a 1031 into a different project. It's a tough sell. It's not totally impossible, but it'll take some real gymnastics. I typically tell clients that condo development is not the best thing to do in an OZ.


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