We have over 40 years of experience helping families FOCUS on what is truly important!


2591 Dallas Parkway #300,
Frisco, TX 75034

Office Hours

Mon – Sat : 8:00AM – 5:00PM
Closed Sundays



Qualified Opportunity Zone Case Study (Simplified a bit)

Bill bought into Facebook early and is ready to diversify by selling off some of his Facebook stock. Assume Bill sells $11m of his Facebook shares that he paid $1m for years ago. That gives Bill a $10m long-term capital gain that’s typically taxable at about 24%, all in.

Rather than pay $2.4m in tax on the sale of Facebook shares, Bill could choose to “reinvest” that $10m of gain into a qualified opportunity zone (QOZ) fund investment. Bill has had his eye on a small parcel in downtown Houston that’s inside the designated QOZ.

Bill will have to create and fund a new entity within six months of his Facebook sale. Assume the new entity is an LLC that will be treated as a partnership. Bill would buy equity of $10m in that LLC. Then the LLC will pay $5m for the land in downtown Houston. And in short order, the LLC will invest its remaining $5m to build on the property.

The LLC will start generating say $700K per year in rent, all of which is taxable. Because no tax has been paid on the $10m invested in the QOZ, unlike a typical real estate deal, no depreciation/amortization is expected to offset the rental income.

At year eight, Bill will have to pay (at long last) his capital gain from the sale of his Facebook stock. He originally owed roughly $2.4m. Since he reinvested it in a QOZ, he gets a 15% discount ($360K), so he’ll only owe about $2m. And the government not only discounts by 15%, but there is no interest charge on that eight-year float. (Assuming the LLC has invested well, the LLC could do non-recourse borrowing in year eight to make a distribution to its owners that would pay Bill’s $2m in taxes due.)

Assume Bill is ready to sell at year 10, when that $10m property has grown at 7% per year and is now worth about $20m. In a normal real estate deal, Bill would have a $10m gain, creating another $2.4m tax burden for Bill. Since this real estate is located in a QOZ, when the sale occurs, instead, there is no tax due whatsoever.

In financial terms, then, Bill has purchased the property with financing that includes $360k of free money (the amount of tax on the Facebook share sale that will never be paid) and a ~$2m interest-free loan from the government with an 8-year term (the amount of tax on the Facebook share sale that is not paid today, but will eventually be paid after 8 years).

There is a modest toll charge for the tax deferral since there will be slightly higher taxes on the LLC’s operating income over the 10 years with no depreciation/amortization.

Bill has exited with no tax at all on his sale of the Houston property, creating a grossed-up after-tax yield that is over 50% higher than the after-tax yield for a comparable non-QOZ investment.

In NPV terms, this after-tax yield becomes incredibly more attractive if debt is used to acquire and/or build the Houston property.

Credit: This content was originally published by Brian Dethrow at Jackson Walker LLP