Qualified Opportunity Zones (QOZ) offer significant benefits to investors and entrepreneurs and can often be overlooked. With this webinar, we are joined by Kirk Walton of GPWM Funds who specializes in QOZ’s and maximizing cashflow, tax savings and profit. You will learn how to take advantage of the tax incentives and other benefits available from investing in a QOZ. you'll discover how to make the most of this lucrative investment strategy.
Kirk illustrates the benefits of QOZ’s by breaking down actual deals he has worked on, and explains how cost segregation studies and accelerated depreciation can generate passive losses which offset future income from assets or W-2 earnings. He also discusses the differences between a 1031 exchange and investing in an opportunity zone fund, such as getting new basis in assets for depreciation deductions and having more time to identify investments.
We also discuss how the Opportunity Zone legislation provides a unique window in time for wealthy individuals to change communities and set up their family and children for long term, tax free growth of real estate. He explains that his fund focuses on rehab projects which provide additional tax savings such as deductions from donating old furniture and fixtures, deductions from qualified improvement property, cost segregation studies, and more. Kurt emphasizes the importance of looking at the totality of an individual’s situation when considering investing in an Opportunity Zone Fund.
About Kirk:
Since the late 1990s, Kirk’s combination of expertise in taxation, estate planning, law, personal finance, and investments has helped him become an elite comprehensive wealth manager, catering to the needs of high net worth individuals and families, including many prominent entrepreneurs, top level executives and venture capitalists in the technology sector. Prior to founding GPWM, Kirk started Eagle Financial Advisors, a fee-only registered investment advisor, in 2002. Prior to founding his own firm, Kirk was a partner with the Ayco Company (now a Goldman Sachs Company) and is an active member of the Idaho and California state bars. Kirk graduated in 1994 from Brigham Young University, majoring in Classical Studies, and earned his J.D., magna cum laude, from Pepperdine University School of Law.
To learn more go to: https://gpwmfunds.com/about-gpwm-2
Qualified Opportunity Zones (QOZ) offer significant benefits to investors and entrepreneurs and can often be overlooked. With this webinar, we are joined by Kirk Walton of GPWM Funds who specializes in QOZ’s and maximizing cashflow, tax savings and profit. You will learn how to take advantage of the tax incentives and other benefits available from investing in a QOZ. you'll discover how to make the most of this lucrative investment strategy.
Kirk illustrates the benefits of QOZ’s by breaking down actual deals he has worked on, and explains how cost segregation studies and accelerated depreciation can generate passive losses which offset future income from assets or W-2 earnings. He also discusses the differences between a 1031 exchange and investing in an opportunity zone fund, such as getting new basis in assets for depreciation deductions and having more time to identify investments.
We also discuss how the Opportunity Zone legislation provides a unique window in time for wealthy individuals to change communities and set up their family and children for long term, tax free growth of real estate. He explains that his fund focuses on rehab projects which provide additional tax savings such as deductions from donating old furniture and fixtures, deductions from qualified improvement property, cost segregation studies, and more. Kurt emphasizes the importance of looking at the totality of an individual’s situation when considering investing in an Opportunity Zone Fund.
About Kirk:
Since the late 1990s, Kirk’s combination of expertise in taxation, estate planning, law, personal finance, and investments has helped him become an elite comprehensive wealth manager, catering to the needs of high net worth individuals and families, including many prominent entrepreneurs, top level executives and venture capitalists in the technology sector. Prior to founding GPWM, Kirk started Eagle Financial Advisors, a fee-only registered investment advisor, in 2002. Prior to founding his own firm, Kirk was a partner with the Ayco Company (now a Goldman Sachs Company) and is an active member of the Idaho and California state bars. Kirk graduated in 1994 from Brigham Young University, majoring in Classical Studies, and earned his J.D., magna cum laude, from Pepperdine University School of Law.
To learn more go to: https://gpwmfunds.com/about-gpwm-2
23
00:03:42.340 --> 00:03:57.250
Mark Perlberg: all right. Goodbye. Welcome to the show. We are joined by Kirk Walton at Gpwm funds, and he has a lot to talk about, and a lot of experience on qualified opportunity zone funds.
24
00:03:57.250 --> 00:04:11.470
Mark Perlberg: and he has helped with syndicating them, organizing them and communicating the value of them to potential investors. So we're gonna do a dive. We talked about this in a much earlier episode, or the legislative environment is changed a little bit
25
00:04:11.470 --> 00:04:27.130
Mark Perlberg: and allow this is a strategy that has been under utilized by a lot of our clients as well. So we're gonna talk about some more specific items and examples and bringing down the numbers. And what you guys could do, we consider it with qualified opportunity zones.
26
00:04:27.280 --> 00:04:33.130
Mark Perlberg: So first let's start off Kirk. Can you, in introduce yourself, or in 60 s or less?
27
00:04:33.580 --> 00:04:37.150
Kirk Walton: Thanks, Mark great to be part of the podcast
28
00:04:37.350 --> 00:04:42.410
Kirk Walton: Gpwm funds is a platform that started with
29
00:04:42.550 --> 00:05:03.400
Kirk Walton: opportunities on funds that we created for our family office clients. I ran a family office multi-family office for Silicon Valley executives and entrepreneurs for many years since the late 1990 s and the.com boom of the nineties so i'm a tax lawyer by background and investment manager, and handled all of their wealth.
30
00:05:03.400 --> 00:05:19.740
Kirk Walton: We had 3 clients who had a significant amount of capital gains at the time. The regulations surrounding this tax incentive were coming out, and we didn't want to pay tax on that 100 millionand gains plus. And so we started our own opportunities on phones, because nobody else out there was getting it right.
31
00:05:19.740 --> 00:05:35.470
Kirk Walton: Some people heard about what we were doing in our focus, and I presented at a conference before Covid at Kpmg, in San Francisco, and that my phone's been ringing ever since. Because people are like, hey? If you're doing it for your clients. Can you do it for us? Too
32
00:05:35.470 --> 00:05:54.520
Kirk Walton: long? Story short, all I've been doing transition my entire practice. All I've been doing the last 4 plus years is opportunities on funds. We've got about 500 millionunder development in various stages and 12 0pportunities on funds that we've created so far for our investors
33
00:05:54.520 --> 00:06:10.520
Kirk Walton: and a projects across the country, and some unique wrinkles on how to maximize the impact of the tax benefits Here we created it for the best interest of our clients, and to protect our clients, and that can work for other people too.
34
00:06:10.520 --> 00:06:14.780
Kirk Walton: So we'll dive into that later. But it's great to be on your podcast. Thanks for having me
35
00:06:14.980 --> 00:06:17.130
Mark Perlberg: awesome. Thanks a lot now.
36
00:06:17.260 --> 00:06:18.410
Mark Perlberg: So
37
00:06:18.620 --> 00:06:24.360
Mark Perlberg: at a high level here with the queue, and we'll dive into the tax even, too.
38
00:06:24.450 --> 00:06:28.640
Mark Perlberg: and some more examples, but a high level here. The benefit with the
39
00:06:28.820 --> 00:06:39.480
Mark Perlberg: is, You could defer your taxes by putting your gain into the qualifier opportunities over. You don't have to put all of your sales proceeds like a 1031. Just the game.
40
00:06:39.650 --> 00:06:51.040
Mark Perlberg: and this game doesn't just have to be from real estate. The game can also be gained from the sale of a business portfolio stocks. Any form of really of capital gains here.
41
00:06:51.150 --> 00:06:52.060
Mark Perlberg: and
42
00:06:52.100 --> 00:06:57.590
Mark Perlberg: so part of that is deferred until December. 30, first, 2,026 correct.
43
00:06:57.770 --> 00:07:09.540
Kirk Walton: Yeah, that's right. And that's a good point about the eligible gain eligible gain can be any gain. In fact, where I live, housing prices of skyrocketed, and some of our most recent investors are people who have sold their primary residence.
44
00:07:09.540 --> 00:07:23.660
Kirk Walton: and you know, under section 121, you can get up t0 250000 per person, 500,000 for a married couple If you own an occupy over the last 2 0ver the last 5 years, and we have people who are selling their homes for a 1 million plus in gain.
45
00:07:23.660 --> 00:07:41.150
Kirk Walton: And so they're, taking advantage of the 500,000 exclusion which they get tax free to get their basis back. Tax-free and just the gain amount in excess of that comes in gain from the sale of stock comes in a mutual fund. Your end capital gain, distribution comes in anything that is taxed or treated as capital gain on the tax return
46
00:07:41.210 --> 00:07:47.640
Kirk Walton: comes in and and as eligible gain it can come in the
47
00:07:47.650 --> 00:07:52.490
Kirk Walton: yeah long term short term passive activity, you know.
48
00:07:52.600 --> 00:07:58.450
Kirk Walton: crypto. Precious metals, collectibles, art
49
00:07:58.650 --> 00:08:01.510
Kirk Walton: say anything that is treated as capital gain
50
00:08:01.530 --> 00:08:16.430
Kirk Walton: just about can come in. It does have to be a transaction in an unrelated third party, and the related net party test in the opportunities on world is 20. So it's a pretty. It really has to be an independent third party. Transaction
51
00:08:16.450 --> 00:08:28.150
Kirk Walton: can't buy it from a relative, or or sell it to a relative to take advantage of this. But any type of game with an end of the independent, non-related party is eligible to come in.
52
00:08:28.920 --> 00:08:33.020
Mark Perlberg: so it will dive into, you know, some time to dive into
53
00:08:33.169 --> 00:08:41.380
Mark Perlberg: the impact and strategies around this, but a part of it is going to be defer it. So the the gain is deferred. At this point you used to get a step of basis.
54
00:08:41.470 --> 00:08:54.710
Mark Perlberg: We'll talk about. Maybe there's some legislation that will give us the first level basis down the road that we've lost. But the really cool thing about this is, if you hold it for 10 years. any gain on that new investment is
55
00:08:54.880 --> 00:09:03.920
Mark Perlberg: completely tax free. So some people would call this like a supercharged by Ira that you don't have to wait until you're 59 and a half
56
00:09:04.130 --> 00:09:07.400
Mark Perlberg: to to take the money out of
57
00:09:07.490 --> 00:09:27.490
Mark Perlberg: and you don't have to pull it from other retirement accounts, and do all the all of this maneuvering to create this backdoor super bad store
58
00:09:27.490 --> 00:09:29.570
in capital gains here.
59
00:09:29.850 --> 00:09:58.700
Kirk Walton: That's right. And here you've been. You've done a good job on your other episodes, your podcast, of pointing out the benefits of real estate, professional status, or materially participate in Airbnb, and how you can generate losses that'll offset the future income from those assets, or can offset income from W. 2 0r other income. We take advantage of those same strategies using cost segregation studies, accelerated depreciation, qualified improvement, property.
60
00:09:58.700 --> 00:10:16.760
Kirk Walton: things like that to generate a bunch of passive losses in the early years, and if you're wealthy enough to set up your own cough if you got an eight-figure gain, we've set up the single investor costs and they self-manage, and they can elect real estate professional status. And so all these losses become ordinary losses. That's relevant. Because
61
00:10:16.760 --> 00:10:28.900
Kirk Walton: if you have capital gain from the sale of, say, an apartment complex or some other passive activity in your portfolio. That capital gain goes in as capital gain from the sale of a passive activity.
62
00:10:28.900 --> 00:10:46.630
Kirk Walton: and there's a form that you put on your tax return every year that you own your interest in the cough the form 89 97, and if your cpa is smart he's gonna mark the special gain code box. It's just column. D you mark that with a a B as in bravo! And that tells the irs
63
00:10:46.630 --> 00:11:16.520
Kirk Walton: that this is gain from the sale of a passive activity, or some other type of you know, depreciable gain. That sale of gain from passive activity is coded that way carried forward on your tax returns, and so comes back on your 2026 Return some portion of it up to all of it perhaps will come back on your 26 return as capital gain from the sale of passive activity, as if it occurred on december thirty-first, 26. That's important because if we do rehab projects that generate a significant amount of passive losses
64
00:11:16.520 --> 00:11:32.770
Kirk Walton: between now and 2,026. Those passive losses are gonna Sit there and roll forward. If you don't have anything else going on. They're gonna sit there and roll forward, and roll forward and roll forward, and then on your 26 return you get this capital gain that comes back from what you deferred when you put it into the cough.
65
00:11:32.770 --> 00:11:45.490
Kirk Walton: and it's offset by the passive losses that we've generated. So there's no tax going in if we get enough depreciation, deductions, and Q. I. P. And things like that between now and 26 there's no tax on 26,
66
00:11:45.630 --> 00:11:51.130
Kirk Walton: We continue to take depreciation. Deductions get appreciation and value over long term ownership.
67
00:11:51.200 --> 00:12:05.690
Kirk Walton: We can cash out refi tax-free. We can take the rents and operations which will probably be sheltered from taxable income, as you know, because it's very tax, efficient, just like any real estate asset and then all the appreciation is tax-free, including
68
00:12:06.600 --> 00:12:17.520
Kirk Walton: the depreciation deductions that we take There's no tax on depreciation, recapture which is an enormous benefit that too few people are focusing on and talking about.
69
00:12:17.560 --> 00:12:40.070
Kirk Walton: You know depreciation deductions you get for your dollars, plus the banks dollars. Assuming we classify the debt as not qualified, not recourse financing which all of ours will be, you get basis in the debt which allows you to take depreciation deductions. So if you put in a you know a 1 million bucks and you got 2 million bucks from a bank long. You got 3 million bucks that potentially could be
70
00:12:40.070 --> 00:12:45.550
Kirk Walton: a depreciation deduction at some point over time. You can't dep depreciate land.
71
00:12:45.700 --> 00:13:00.920
Kirk Walton: So you gotta allocate. You know something to the land, but everything else we're trying to depreciate as early as possible as much as possible, and let's say out of you know, for every 1 million bucks that goes in you got 3 million bucks. It could be.
72
00:13:00.980 --> 00:13:09.030
Kirk Walton: Maybe you end up getting 2,000,002 and a half 1 million in depreciation deductions over the life of that asset. Well, if you're in a 40% tax bracket.
73
00:13:09.110 --> 00:13:15.760
Kirk Walton: you're getting tax savings of you know 80 cents on the dollar up t0 100 cents on the dollar.
74
00:13:15.840 --> 00:13:20.480
Kirk Walton: just from the ability to take a massive depreciation, deductions
75
00:13:20.660 --> 00:13:36.490
Kirk Walton: of reducing taxable income and never paying tax on that much in income just right there the opportunity zone, even if you get nothing in rent, just the tax savings will save you that much, and money basically about equal to the dollars going into the deal.
76
00:13:36.490 --> 00:13:50.560
Kirk Walton: if you do the kind of rehab projects, and if we get to IP, and if and hopefully get the bonus appreciation rules extended, those are stepping down, as you know, so it gets less and less advantageous right now under the current.
77
00:13:50.560 --> 00:14:01.910
Kirk Walton: you know, tax structure, but there's a lot of momentum to revive and extend the bonus. Depreciation rules a lot of momentum, as you mentioned, to extend the opportunity zone tax benefits as well.
78
00:14:01.910 --> 00:14:13.260
Kirk Walton: There was a bill last year. It didn't pass They didn't do any tax extenders at the end of the year, which was really unusual. So we'll see what this Congress does. Hopefully they get their act together, and.
79
00:14:13.260 --> 00:14:29.280
Kirk Walton: you know, do some taxic senders and take it. You know, bonus depreciations one everybody wants, and the opportunities. It had massive bipartisan support, you know, and I really thought I had a good chance of passing last year, and I think it has a good chance of passing this year.
80
00:14:30.020 --> 00:14:40.650
Mark Perlberg: Yeah, once you jump into that a little bit. So what's interesting here in in you know we're i'm a big proponent of 1031 ex. We've got a lot of them however.
81
00:14:40.680 --> 00:14:43.490
Mark Perlberg: with a 1031. When you have your gain
82
00:14:43.540 --> 00:14:56.080
Mark Perlberg: your your basis is reduced by your deferred game, and it reduces your opportunity when you roll that that gain and that basis into your new, to your new replacement property.
83
00:14:56.170 --> 00:15:14.240
Kirk Walton: The benefits of cost sag is reduced because you have less basis in the proper that's right. There's no pen, hardly any benefit, especially if it's something that you own for a very long time. You've already depreciated most or all of your basis. I used to be a huge fan of 1,031 exchanges, until the opportunities on legislation came about
84
00:15:14.240 --> 00:15:24.360
Kirk Walton: with the opportunities on legislation it's the exact opposite. I get new basis in my assets which gives me depreciation deductions that a 1031 investor won't. Get
85
00:15:24.780 --> 00:15:43.570
Kirk Walton: that's huge because that's tax savings. That means more of my rental income is going to be a tax-free. The other thing I get some liquidity I don't have to, as you pointed out. I don't have to roll over everything. I only roll over the gain portion. Anything taxes, capital gain. I roll over.
86
00:15:43.730 --> 00:15:46.580
Kirk Walton: and then my basis I get to put my checking account.
87
00:15:46.600 --> 00:16:14.160
Kirk Walton: Another thing is, if you're doing a 1031 exchange. You have a very tight window to identify assets. And that kind of assets you I identify are basically it's really hard to do development in a 1031 transaction. You're basically buying established assets at current cap rates and you're milking it for cash flow and a little bit of rent bumps and rehab it's really hard to do developments and rehab massive rehab, whereas in the opportunity zone you have to
88
00:16:14.160 --> 00:16:20.630
Kirk Walton: do some sort of rehab, and the best lift the highest, you know. Irr period
89
00:16:20.630 --> 00:16:44.160
Kirk Walton: is when you go from bare dirt to develop or go from, You know, ugly building and rehab, buy it cheap, and rehab it, and make it shining and new, though that's the period where you get your heavy lift, which you cannot do with the 1031 exchange and the opportunity zone rules encourage you to do that, and you get massive tax benefits for doing that. All of those passive losses were generating from Q. I. P. Deductions qualified improvement. Property
90
00:16:44.170 --> 00:16:48.180
come from the Rehab qualified improvement Property for those who don't know
91
00:16:48.260 --> 00:16:58.980
Kirk Walton: is the amount you spend to improve the interior space of an existing building that is treated as a commercial asset. On your tax return.
92
00:16:59.310 --> 00:17:01.520
under the Q IP. Rules
93
00:17:01.620 --> 00:17:09.589
Kirk Walton: every dollar you spent to rehab the interior space of an existing building can be depreciated over a 15 year lifetime.
94
00:17:09.680 --> 00:17:23.560
Kirk Walton: and under the bonus depreciation rules anything that is 15 years or less like if it was placed in service last year, 2,022, it was a 100% right off in year, one.
95
00:17:23.640 --> 00:17:37.080
Kirk Walton: if it's placed in service in 2,023. It's an 80% right off in year. One. If it's 2024, it's a 60%, and then it's stepping down t0 40 and 20. So we have this limited window of time
96
00:17:37.300 --> 00:17:41.670
Kirk Walton: where multiple tax strategies have aligned.
97
00:17:41.730 --> 00:17:53.250
Kirk Walton: where you do a cost segregation study to get things that are shorter than 15 years. You do. Q. I. P. Which is everything you spend on remodeling the interior space of an existing building.
98
00:17:53.360 --> 00:18:00.960
Kirk Walton: You get enough commercial income to make it classified as a commercial building on your initial tax return.
99
00:18:01.070 --> 00:18:08.620
Kirk Walton: and you take the huge ride off we love multi-family and residential we love, I mean our main focus. Most of our holdings are apartments.
100
00:18:08.820 --> 00:18:19.360
Kirk Walton: But if you can find a project that has a stack of apartments that you can rehab. and you have enough commercial space, and you can start getting rent on the commercial space early enough.
101
00:18:19.460 --> 00:18:34.170
Kirk Walton: Your project will be treated as a commercial project if 20% or more of the rents come from your commercial tenants. and so and you can stagger when you rent and the apartments, and you can get the benefits of qip deduction
102
00:18:34.810 --> 00:18:37.320
Kirk Walton: on improvements of residential housing.
103
00:18:39.150 --> 00:18:43.600
Mark Perlberg: Yeah. So I mean, this is something to get to get excited about here, because
104
00:18:43.860 --> 00:19:00.500
Mark Perlberg: you know, unlike what it was, where you have 45 days to identify. And those deals may not go through. You know you have a 180 days you, even if you know we'll see with clients. You know the client will have a cap games event in their stock portfolio
105
00:19:00.560 --> 00:19:07.540
Mark Perlberg: that we see, and even if the year is close, we still to for the gains with the Q. O. Z. And
106
00:19:07.940 --> 00:19:19.770
Mark Perlberg: not only are you you not only are you deferring the taxes. But you have this vehicle that may potentially eliminate all the tax liabilities on the cap gains. And then in the future you have
107
00:19:19.850 --> 00:19:31.390
Mark Perlberg: the You know this is a successful investment, and obviously we're not doing this just to reduce our taxes. But if this is an asset, and you know real estate is a stable asset that grows and appreciates over time.
108
00:19:31.400 --> 00:19:41.730
Mark Perlberg: You You hold this for enough time. You're also looking at a huge opportunity to have tax free capital gains in the future and pull your money out, and you don't have to wait till you're 60 to do it.
109
00:19:41.790 --> 00:19:58.130
Kirk Walton: You have to wait till you die the swap to you drop thing, which is, you know what a lot of people do they? 1031, and keep 1031 until they die, and then they get the step of a basis. You know that's great for your kids, but with this you can get a step up and basis perfectly time to the date of sale.
110
00:19:58.300 --> 00:20:13.840
Kirk Walton: and you don't have to die to get the stuff up and basis which I think is a major benefit. But the other thing we're 1031 doesn't help is if you have a partnership, you know, like, let's say you're in a partnership, and you the partnership owns a real estate asset.
111
00:20:14.020 --> 00:20:19.170
Kirk Walton: You can do a 1031 at the partnership level if everybody wants to do it.
112
00:20:19.840 --> 00:20:26.450
Kirk Walton: But the individual partners cannot do it if one that you know you have to get everybody on board with the Opportunity Zone.
113
00:20:26.710 --> 00:20:34.420
Kirk Walton: Each individual partner gets their
114
00:20:34.820 --> 00:20:38.420
and each one can do whatever they want with it. In fact.
115
00:20:38.520 --> 00:20:43.400
Kirk Walton: there's enormous flexibility of the timing. Normally you have 180 days
116
00:20:43.570 --> 00:20:56.400
Kirk Walton: from the date of the sale to put the capital gain amount into the qualified opportunity. Font. If you have a capital gain that is reported to you on a K. One.
117
00:20:56.870 --> 00:21:03.710
Kirk Walton: you actually have 3 choices of when to start your 180 day clock Enormous flexibility.
118
00:21:04.290 --> 00:21:08.420
Kirk Walton: The first is the date of the sale. the second is December 30, first.
119
00:21:08.540 --> 00:21:27.660
Kirk Walton: and the third is the due date of the tax return for the entity, not including extensions which for most calendar year partnerships is going to be March fifteenth. Gotta be careful, because sometimes there's a short year if they sell everything and close the business down. Sometimes there's a short year, and it's not a full year. Calendar entity. In that case the due date is not March fifteenth.
120
00:21:27.660 --> 00:21:34.680
Kirk Walton: So you gotta be careful about that. But for most K. One's you're gonna get those on March Fifth. They're gonna be due on March fifteenth.
121
00:21:34.730 --> 00:21:43.690
Kirk Walton: so you could have a partnership that sold something last January of 2,022 they have until September eleventh of this year of 2,023
122
00:21:43.820 --> 00:21:45.450
Kirk Walton: those partners to
123
00:21:45.580 --> 00:21:55.370
Kirk Walton: put money into a qualified opportunity fund, and save money on their 2,022 taxes, enormous flexibility. You also have enormous flexibility on installment. Sales.
124
00:21:55.610 --> 00:22:00.160
Kirk Walton: You can start your 180 day clock for installment sale. Capital gain
125
00:22:00.250 --> 00:22:02.470
Kirk Walton: on December 30 first of the year.
126
00:22:02.540 --> 00:22:10.070
Kirk Walton: or with each payment date. So there's a lot of flexibility in the rules, but backing up to the big picture. What you said
127
00:22:10.130 --> 00:22:17.340
Kirk Walton: you wouldn't do this for anything that you wouldn't otherwise do when you distill the opportunity zone to its core. What it does
128
00:22:17.480 --> 00:22:28.420
Kirk Walton: is it gives you enormous tax benefits for holding real estate. And if you're a family that would hold real estate anyway, as part of your portfolio, there's an enormous
129
00:22:28.560 --> 00:22:38.690
Kirk Walton: uneven like playing field in favor of opportunities on real estate. How many people have you known that have owned real estate for 20 years.
130
00:22:39.200 --> 00:22:40.550
Kirk Walton: and then sold it
131
00:22:42.630 --> 00:22:53.830
Kirk Walton: it it. It's a significant gain to anybody that you've ever met who's owned real estate for 20 plus years. and that's what this does. It allows you t0 0wn real estate for 20 plus years.
132
00:22:54.260 --> 00:23:01.220
Kirk Walton: but without paying tax. I'm again, or the depreciation deductions and depreciation recapture.
133
00:23:01.290 --> 00:23:08.590
Kirk Walton: So that is what the opportunity zone is all about, and real estate is a great way to generate wealth and grow wealth.
134
00:23:09.250 --> 00:23:18.320
Kirk Walton: My clients own real estate always have owned real estate. They're always going t0 0wn real estate as a slice of the portfolio. We ran the math. You may be interested in this mark. Yeah.
135
00:23:18.600 --> 00:23:22.330
Kirk Walton: We were in the math on. Let's say you have a a
136
00:23:23.110 --> 00:23:24.280
Kirk Walton: twin brothers.
137
00:23:24.420 --> 00:23:28.090
Kirk Walton: They each have, you know, 10 million and capital G.
138
00:23:28.270 --> 00:23:33.310
Kirk Walton: One of them pays tax, and let's say we live in Idaho, where we live. The tax is about 30%.
139
00:23:33.720 --> 00:23:36.990
So they got 7 million left over to invest.
140
00:23:37.270 --> 00:23:49.790
Kirk Walton: If they grow that it? Let's say they pick some perfect stock that grows. I don't know 8% a year if it grows at 8% for a year and 10 years, and then they cash out, and they pay capital gains tax again on whatever the growth is during those 10 years.
141
00:23:50.160 --> 00:24:02.600
Kirk Walton: and they cash out. Twin brother takes his 10 million and invest full 10 million grows at 8%. Well, he gets more growth in the early years because he's got 10 million growing instead of just 7 million.
142
00:24:03.580 --> 00:24:06.370
Kirk Walton: Hey, hey? Let's say we pay this tax. And like
143
00:24:07.320 --> 00:24:14.150
Mark Perlberg: we talk about the compounding growth of your wealth over time. That's right. That's right. It is.
144
00:24:14.440 --> 00:24:24.870
Kirk Walton: That's right. And so you're growing. You have a larger asset base growing. So even if you're getting the same, returns. And then let's say you take a distribution out a April fifteenth of 2027, to pay your taxes.
145
00:24:24.950 --> 00:24:28.590
and then keep the rest of it growing for the rest of the 10 years.
146
00:24:28.680 --> 00:24:43.130
Kirk Walton: and then you sell everything. At the end of 10 years. The brother who did the Opportunity Zone Fund on an 8% growth rate. has about an extra 5 million dollars on a 10 million dollar starting investment.
147
00:24:43.770 --> 00:24:55.460
Kirk Walton: The opportunity zone ads about 5% a year just for the exact same return just inside the opportunity zone wrapper. and that's just with an 8% annual return.
148
00:24:55.770 --> 00:25:00.540
Kirk Walton: The gap widens. If you go from 10 years t0 15 years or t0 20 years.
149
00:25:01.170 --> 00:25:16.670
Kirk Walton: and the gap widens. If you go from 8 up t0 10 0r 12, the greater the return, and we're not doing projects where we think we're going to get just 8. You know we're we're targeting high teens, low twenties on the early years in the development years on our projects, and we think we'll get that.
150
00:25:16.670 --> 00:25:21.870
Kirk Walton: We have every reason to have confidence in that. So but even if we just get 8%,
151
00:25:22.190 --> 00:25:32.150
Kirk Walton: the it's the it's a logarithmic curve. The longer you go, and it's like a rocket. So you're generating, you know, 50% more wealth in a decade.
152
00:25:32.290 --> 00:25:38.290
Kirk Walton: Then you would doing the exact same project with the exact same underlying returns.
153
00:25:39.380 --> 00:25:40.330
Mark Perlberg: Yeah. So
154
00:25:40.370 --> 00:25:44.420
Mark Perlberg: it is really interesting to see how this plays out long term.
155
00:25:44.470 --> 00:25:48.950
Mark Perlberg: And so when we think about
156
00:25:49.020 --> 00:26:08.020
Mark Perlberg: some other off, some other things that you can do this now, i'm not sure if you guys do this, and it's not as well known, but you can also invest in businesses in qualified opportunity zones, and even oil and gas mining wells, and qualify opportunity zones, and there's some taxes Advantages there as well. Have you ever seen?
157
00:26:08.080 --> 00:26:25.050
Kirk Walton: Yeah, I have. I've seen that on with respect to the oil and gas, One of the gimmicks is for them is the decrease in value, you know. If you put in 10 million bucks and an opportunities on fund and on december thirty-first, 26, it's worth 5 million bucks the real estate markets gone down.
158
00:26:25.190 --> 00:26:27.810
Kirk Walton: You don't have 10 million in gain coming back.
159
00:26:28.020 --> 00:26:30.370
Kirk Walton: You have downside protection.
160
00:26:30.520 --> 00:26:33.760
Kirk Walton: and you only have, if it's worth less than what you put in.
161
00:26:33.790 --> 00:26:53.380
Kirk Walton: Then your capital gain is limited to what it's worth on December 30, first, 26. So the guys who are pitching the oil and gas. They're taking advantage of the fact that it's going to be minority ownership. Lack of marketability discount, and they're going to get some opinion. Say it's worth significantly less. And so hopefully, you're going to get cash flow from your oil and gas.
162
00:26:53.380 --> 00:27:11.540
Kirk Walton: You, don't get the benefit of your and tangible drone costs, I believe, because you don't have any basis. You don't there's no debt there's po no qualified non recourse financing debt. Unlike what we do to give you debt basis to take advantage of those deductions. You don't have any basis in your dollars going in and tell that they're included in income.
163
00:27:11.630 --> 00:27:30.840
Kirk Walton: and then that you only get basis to the extent they're included in income. So for the oil and gas play, you really gotta be bullish on commodit those commodities. The same is true. For start up companies. There already is a provision which we're well versed in and taken significant advantage of.
164
00:27:30.890 --> 00:27:40.960
Kirk Walton: where you can do a a qualified small business to start up, which is just about any C. Corp, and as long as it has under 50 million and assets when you set it up.
165
00:27:41.110 --> 00:27:49.520
Kirk Walton: You can get under section 1,202. You can. Each investor can exclude up t0 10000000dollars up t0 10000000per investor
166
00:27:49.650 --> 00:27:54.520
Kirk Walton: tax-free game. and if you have more than 10 million.
167
00:27:54.700 --> 00:28:12.680
Kirk Walton: or if you and that's for 5 years of ownership, with no geographic limitations, whereas there are some geographic limitations, and you have 10 years with the opportunities on. You can double stack, by the way, qualified small business stock on top of opportunities, on benefits and a. And I've seen that if you're starting the next Facebook, and you're certain it's the next Facebook.
168
00:28:12.700 --> 00:28:33.800
Kirk Walton: you should start at an opportunity zone and double, stack it with qualified small business stock, and in 5 years take an exit to take 10 million for you and 10 million for each of your children off the table like we've done that with clients we've sheltered, you know, 30000000 0n an exit and then taken advantage of section 1045,
169
00:28:33.800 --> 00:28:48.150
Kirk Walton: which allows you know like. Section 1031 is roll over the furlough gain for real estate Section 1045 is roll over into furlough. Gain of call. If I small business stock, so you can do qualified small business stock, and you can do that even after 6 months, and tack on your holding period.
170
00:28:48.170 --> 00:28:54.150
Kirk Walton: What i'm saying is, the smart money in Silicon Valley already knows how to get tax-free gain on startup businesses.
171
00:28:54.260 --> 00:29:07.750
Kirk Walton: Yeah, it it. It's been tried and true, and we've been doing it for decades. It's tax. It's 5 years. No geographic limitation enormous flexibility, and everybody in startup world is familiar with it. And we've been doing that for decades.
172
00:29:07.940 --> 00:29:15.640
Kirk Walton: That is why you do not see a lot of big startups with opportunities on money, because most startups actually fail.
173
00:29:16.020 --> 00:29:19.710
Kirk Walton: and you have a limited amount of capital gain dollars to allocate.
174
00:29:20.710 --> 00:29:28.890
Kirk Walton: So let's allocate it to something that's almost a sure thing. You know real estate can never go t0 0. Really, I mean, I suppose if there's
175
00:29:28.970 --> 00:29:45.360
Kirk Walton: you know, some huge environmental thing you didn't know about, and you have to clean up, and maybe but the odds of real estate going t0 0 are essentially 0. It's going to be worth something. In fact, the odds of real estate significantly appreciating. If you give us a 10 0r 20 year window
176
00:29:45.370 --> 00:29:47.420
Kirk Walton: are incredibly high.
177
00:29:47.570 --> 00:29:54.880
Kirk Walton: so it's a it's much more of a sure thing, so the smart money in the opportunities on space is going towards real estate
178
00:29:54.900 --> 00:29:56.730
Kirk Walton: and using their basis
179
00:29:56.760 --> 00:30:08.630
Kirk Walton: to allocate towards startups. In fact, if you got a if you've got more than a 1 million bucks to allocate to a startup. If you allocate 2 million bucks to start up, you actually can get 20000000 0f tax free gain.
180
00:30:08.640 --> 00:30:15.970
Kirk Walton: It's 10 million. If you put in anything from a penny to a 1 million bucks, if you put an over a 1 million bucks, it's 10 times your basis.
181
00:30:16.260 --> 00:30:24.220
Kirk Walton: so is the it's the Max capital gain that you can get text- So those provisions are already out there and well known.
182
00:30:24.560 --> 00:30:34.350
Kirk Walton: So the smart money is going into real estate, and almost all of the OP zone money are going into real estate. I I don't see too many operating businesses
183
00:30:34.420 --> 00:30:46.470
Kirk Walton: in the Ops. On space. Technically it's available, but it has limited applicability, whereas real estate and an opson has massive broad, you know, applicability
184
00:30:46.480 --> 00:30:51.380
Mark Perlberg: interesting. So we talk about the benefits of the per your gain and putting into the Q. A.
185
00:30:51.710 --> 00:30:55.690
Mark Perlberg: Do you ever see people invest in qualified opportunity? Zones
186
00:30:55.770 --> 00:31:11.370
Mark Perlberg: not with capital gains, funds, but with just general funds, so just putting their cash into qualified opportunities on. Obviously, you wouldn't defer your gain, but you still have the benefit of deferring the gain after 10 years. Do you see people taking advantage of that?
187
00:31:11.880 --> 00:31:22.460
Kirk Walton: You know the it's interesting. And this is where the cynic and meat comes out, because if the regulations, If there. If this tax incentive was designed to benefit the communities and only benefit the communities.
188
00:31:22.490 --> 00:31:30.860
Kirk Walton: then you would think any money going into that community would qualify for these benefits, but that's not the case. It has to be eligible gain.
189
00:31:30.950 --> 00:31:48.120
Kirk Walton: and that has to be capital gain and a transaction put in within 180 days in a sale from an unrelated third party. Any end of the dollars you put into the opportunities on funding you actually get a bifurcated holding. I get you put in 500,000 and an opportunities on fund, and turns out you only have 400,000 and eligible gain.
190
00:31:48.190 --> 00:31:54.350
Kirk Walton: You actually have 2 holdings. You have 400,000 and opportunities on fund that's going to get all the tax benefits we've talked about.
191
00:31:54.490 --> 00:32:09.320
Kirk Walton: and you have a 100,000. That's just a normal investment. No exclusion again, no free depreciation deductions without the appreciation of capture. It's it's every in every way. It's it's just like an ordinary realistic holding.
192
00:32:09.520 --> 00:32:12.100
So you have to start with capital gains.
193
00:32:12.370 --> 00:32:24.440
Kirk Walton: We have seen people manufacture gains, increased trading activity. Take a look at like if you're sitting on a real estate portfolio right now, and you love real estate.
194
00:32:24.890 --> 00:32:41.400
Kirk Walton: I can show you where opportunities are. Opportunity zones are. They ended up being everywhere that cover almost 16 0f the surface area of the country. They're in markets and in locations that you would want to invest in, anyway, and that's super important to remember. You never want to do anything that you wouldn't otherwise do.
195
00:32:41.490 --> 00:32:49.780
Kirk Walton: But if you've got let's say you got an apartment building on one side of the street that's in the zone, and you have an apartment building that's on the other side of the street that's not in the zone.
196
00:32:49.980 --> 00:32:51.860
Kirk Walton: Sell your apartment building.
197
00:32:51.920 --> 00:32:55.700
Kirk Walton: go, build, or buy or rehab the one that's in the zone.
198
00:32:55.860 --> 00:33:14.740
Kirk Walton: And now you get the benefit of real estate appreciation. Right now you're choosing to hold real estate that you get tax, efficient cash flow, and you're already well familiar with that. You know why you're in real estate. The massive wealth generation from that the tax efficiency. And you you get those same benefits and the opportunities on space.
199
00:33:14.800 --> 00:33:20.230
Kirk Walton: But in your case you're gonna pay tax on the exit.
200
00:33:20.590 --> 00:33:23.400
Kirk Walton: or you're gonna have t0 1031 swap till you drop.
201
00:33:23.490 --> 00:33:31.000
Kirk Walton: and you don't get any more depreciation deductions if you've already owned it for a long time, and already did appreciate you. Most of it. Put it in the Ops on space.
202
00:33:31.140 --> 00:33:33.280
Kirk Walton: You get the same type of returns.
203
00:33:33.420 --> 00:33:42.160
Kirk Walton: you, but they're more tax efficient because you get more basis from the qualified non recourse financing. Which means you get more depreciation deductions, and there's no tax on the exit.
204
00:33:42.370 --> 00:33:44.700
Kirk Walton: So you have people manufacturing gains.
205
00:33:44.970 --> 00:33:55.500
Kirk Walton: you know, and turning it over, or taking like, let's say you have a stock. Let's say you bought. I don't know. Let's say you bought Tesla a long, long time, or apple, or whatever, and you love Tesla and you what? Or you love apple
206
00:33:58.250 --> 00:33:59.310
Kirk Walton: exactly.
207
00:34:00.590 --> 00:34:04.520
Mark Perlberg: When we drive our clients into a $0. Okay.
208
00:34:04.550 --> 00:34:23.820
Mark Perlberg: your first $80,000 of cap gains is untaxed. We might as well take advantage of that. Sell it.
209
00:34:23.820 --> 00:34:39.940
Mark Perlberg: We sell, and we buy back to the point of that $80,000 game that's untaxed. We got 80,000 a basis to eliminate future cap gains. We got a remaining $120,000 a game that we roll into a. Q. And a. That is offset by the depreciation and other activities.
210
00:34:39.940 --> 00:35:03.870
Mark Perlberg: and the cool thing that I like about to do is that you get all these tax advantages of cost, irrigation, pat and and and tax advantage, passive rental income. You don't have to do anything if you're too busy. If you don't want to. If you can't get rep status, you don't want to do short term rentals. You're still going to see a lot of tax advantages of investing in real estate, and you don't have to. Really.
211
00:35:03.950 --> 00:35:09.040
Mark Perlberg: you don't have to landlord. You don't have to invite tenants. You all have to do an hour a lot.
212
00:35:09.560 --> 00:35:20.110
Kirk Walton: Yeah, it it's enormous, and for the ultra wealthy it's the closest thing to a super, Roth. I. They can get access to, You know they're getting tax free growth.
213
00:35:20.140 --> 00:35:39.270
Kirk Walton: The other thing it does is it compounds on itself, and so far I have yet to see anyone else talking about this aspect. Mark, this is a unique aspect that I've been talking about since day one If you followed the evolution of the regulations, the Irs and the Treasury Department wanted there to be tax free
214
00:35:39.380 --> 00:35:48.060
Kirk Walton: on an interim gain, so you can g0 0ut and buy a building, fix it up and then sell it inside your opportunities on phone, and then g0 0ut and take the money and do it again.
215
00:35:48.210 --> 00:36:00.680
Kirk Walton: Now you technically, you can do that with the 1031. Exchange your opportunities on fund can buy, build up, lease up, stabilize, sell, and 1031 exchange into another asset, and then inside the opportunity zone.
216
00:36:00.880 --> 00:36:06.520
Kirk Walton: But if the Opportunity Zone Fund sells an asset before the 10 year holding.
217
00:36:06.600 --> 00:36:18.960
Kirk Walton: then there's going to be capital gain on that now. There are times when that's appropriate. In fact, we've done that, and i'll tell you a story about how that work, and we did that, and it generated a a. You know, a small capital gain number
218
00:36:19.240 --> 00:36:21.090
under the
219
00:36:21.290 --> 00:36:30.950
Kirk Walton: final regulations. Money that comes from the qualified opportunities owned business, which is the single or special purpose entity that owns the real estate
220
00:36:31.030 --> 00:36:37.410
money that comes from that up to the Qf. Which is the fund where the investors money goes into
221
00:36:37.840 --> 00:36:45.270
Kirk Walton: money that comes back that's return a capital or from a capital gain. You can actually sit on that kind of money
222
00:36:45.320 --> 00:36:49.220
Kirk Walton: for 12 months inside the qualified Opportunity Fund.
223
00:36:49.380 --> 00:37:00.620
Kirk Walton: and be very picky and choosing. You can also add to it cash, flow from operations and brands and things like that or a cash out refi that sends money back tax-free
224
00:37:00.800 --> 00:37:11.710
Kirk Walton: that money sits in the cough for the qf, and you can, if you want to. You can send it out to the investor. But most investors don't need that cash flow.
225
00:37:11.800 --> 00:37:16.480
Kirk Walton: Most of our investors, and if they're not needing the cash flow. It's like your Roth Ira.
226
00:37:16.590 --> 00:37:19.540
Kirk Walton: If if you have a Roth Ira.
227
00:37:19.780 --> 00:37:31.690
Kirk Walton: and you open it up right now, and you own it for 5 years, and you hit age 59 and a half. You can cash that out completely. Tax-free at age 59, and a half with 5 years of ownership. But who does that with the Roth Ira.
228
00:37:31.970 --> 00:37:42.170
Kirk Walton: Nobody Same thing. If you have a Roth Ira that has a stock, and it pays dividends. you can take the dividends. Call up your broker and say, send me the dividend check to my checking account outside of my Roth.
229
00:37:42.280 --> 00:37:49.080
Kirk Walton: You can do that, but nobody would want to. because then you gotta invest it somewhere where you gotta pay tax on it.
230
00:37:49.130 --> 00:37:55.650
Kirk Walton: Same is true, with an opportunities on world, but nobody has structured their opportunities on funds to do take advantage of this other than us.
231
00:37:56.040 --> 00:38:07.600
Kirk Walton: We take it we have the option where money comes back from the projects into the opportunities on fund. And we put that back into another opportunities on project and back into another opportunities on project.
232
00:38:07.600 --> 00:38:19.380
Kirk Walton: getting more assets that generate depreciation deductions, tax-free more assets that grow tax-free, and we can do this until the end of 28. So about another 5 years or so
233
00:38:19.660 --> 00:38:25.960
Kirk Walton: after that everything we've already got and started is grandfathered in, and we'll get these benefits.
234
00:38:26.060 --> 00:38:31.660
Kirk Walton: But so, for our game plan is to build rehab cash out refi
235
00:38:31.920 --> 00:38:51.270
Kirk Walton: re re-invest it back in the ground again, reinvest again and again, and it's almost like planting a row of crops, harvesting it, and then taking the harvest and planning another road crops. Now you got even more assets growing for you tax-free. It's like compounding on itself inside like a roth ira. And when you look at the numbers on that
236
00:38:51.270 --> 00:38:58.570
Kirk Walton: you know I talked about. If you put in a 1 million bucks you're gonna get maybe 2,000,002 and a half 1 million in depreciation directions. That's on your first asset.
237
00:38:58.620 --> 00:39:08.940
Kirk Walton: If you're able to put in a 1 million bucks and do a cash out, refund, get most or all of your money back. Now you can briefly and do it again. And now you've got 2 million bucks
238
00:39:09.230 --> 00:39:10.420
Kirk Walton: at play
239
00:39:11.520 --> 00:39:15.140
Kirk Walton: tripled up. If you do you know two-thirds one-third leverage.
240
00:39:15.340 --> 00:39:19.440
Kirk Walton: Now you're getting even more depreciation deductions for each dollar that's going in.
241
00:39:19.750 --> 00:39:29.900
Kirk Walton: and more appreciation tax-free for 20 years. Nobody's talking about that nobody's talking about the depreciation recapture and those benefits and compounding them on itself.
242
00:39:29.940 --> 00:39:49.750
Kirk Walton: And that's the biggest opportunity in the opportunities on space that most people are missing every opportunities on fund that I've looked at. Their game plan is to send money back to the investor as soon as possible, because that's how they they measure their return, and how they get to their back end, promote it's like opening a Roth I, or what the broker is saying. I'm going to give you your dividends back
243
00:39:49.750 --> 00:40:06.830
Kirk Walton: every other opportunity. Don't Fund out there that I've looked at. Their game plan is to sell at 10 years in a day. They're counting down the days to get t0 10 years. which is like opening a Roth Ira with the broker, who says, as soon as you hit 59 and a half with 5 years ownership. I'm going to cash you out because you can do it completely. Tax-free, and it's not awesome.
244
00:40:07.050 --> 00:40:21.690
Kirk Walton: yeah, it is. But you know what's better than 10 years of tax, free growth. 15, 20, in fact, it gets significantly better. In fact, 10 years down the road. You are at the same fork in the road as you are at the beginning.
245
00:40:21.790 --> 00:40:24.940
Kirk Walton: which is to say, you could sell and cash out.
246
00:40:24.950 --> 00:40:30.820
Kirk Walton: or you could keep it in. And the reason you put it, in in the first place, is it could grow tax-free.
247
00:40:31.050 --> 00:40:36.920
Kirk Walton: and that's better than putting it somewhere taxable. That same logic applies. 10 years later.
248
00:40:37.140 --> 00:40:46.500
Kirk Walton: when you're at the fork in the road, and you decide to sell or not sell. You could sell and take the money out and put it somewhere where you're going to pay taxes on the growth. or you could leave it in, and it will grow tax free.
249
00:40:46.850 --> 00:41:09.590
Kirk Walton: The same logic. It. It drives your decision the other way. Now it's true. Anything has its price. I told you I tell you a story about one project we bought. We bought a couple of old big boxes. We bought a couple of Sears. We got one Sears in Melbourne, Florida, and it came on 14 acres. Standalone Sears, not a anchor tenant at a mall, but stand alone. Sears vacant For a long time. We bought a super cheap.
250
00:41:09.600 --> 00:41:24.700
Kirk Walton: and the parking lot along 2 busy streets was very attractive t0 0ther developers. We thought about developing it ourselves, and we had an offer that we couldn't refuse. So we sold off about half of the land.
251
00:41:24.770 --> 00:41:28.890
Kirk Walton: and recovered most of our money now. That was a capital gain event.
252
00:41:28.930 --> 00:41:39.840
Kirk Walton: but we have significant losses from our other projects. So it just reduced. you know, in the grand scheme of things that ate up some of our losses. and we use that money to g0 0ut and acquire another existing building.
253
00:41:40.130 --> 00:41:46.120
Kirk Walton: and in the meantime we got a construction loan, which gave us a little bit of money back between those 2 transactions.
254
00:41:46.140 --> 00:41:50.500
Kirk Walton: Within 24 months we had recovered 100% of our money in the project
255
00:41:51.370 --> 00:42:04.860
Kirk Walton: all of our money back recycled it, and reinvested into another project. Meanwhile a construction loan is funding the finishing out of the you know the rehab. It's going to be a climate controlled self storage, and a market that doesn't have self storage.
256
00:42:04.860 --> 00:42:23.930
Kirk Walton: This guy who bought our parking lot is building apartments right next t0 0ur self storage building. We're gonna own and operate the self storage and one at least, when it lease is up and it stabilized. We'll be able to go back to the bank and take cash out refi and get even more money out after already getting 100% of our money back.
257
00:42:23.990 --> 00:42:28.540
Kirk Walton: We're going to get more out in a couple of years, once leased up and stabilized. and then
258
00:42:28.610 --> 00:42:31.460
Kirk Walton: it. With respect to all of that cash flow.
259
00:42:31.750 --> 00:42:35.660
Kirk Walton: We're reinvesting it in more projects and more projects in the opportunity zone.
260
00:42:36.430 --> 00:42:55.160
Mark Perlberg: Yeah, so. And like again, like a lot of people think all this time to liquidate my portfolio, and this and that. A simple way to to to access cash is through the re-fives that, like I said, you could 1031 exchange within an opsone. But when we looked at it, and did the math.
261
00:42:55.460 --> 00:43:09.710
Kirk Walton: we like the monetization of the asset through a cash out reflection. We're not going to sell in 10 years. We're gonna, you know. If If there's enough value that you'd want to sell in 10 years, there's enough value for you to go to the bank and monetize it through a cash out refi tax-free.
262
00:43:09.710 --> 00:43:20.750
Kirk Walton: and take most of the money, out, and continue to milk it for cash flow. Continue to get appreciation. Continue to get depreciation deductions that you're never going to pay tax on and monetize it with a brief eye.
263
00:43:21.310 --> 00:43:43.000
Mark Perlberg: S0 0ne of the I. One of the reasons why people may be hesitant. and one of the misperceptions here about Q. A. Is, people will say, Well, I want to invest in low income housing the qualify opportunity. Zones are in the places where nobody wants to live, and i'll tell you from my experience of what I've seen. And you you could tell me
264
00:43:43.000 --> 00:43:54.740
Mark Perlberg: now you you're gonna be able to give me a much greater in-depth response to this. But in Charlotte North Carolina where I live there is an area that was there. We needed a qualified opportunity zone.
265
00:43:54.740 --> 00:44:08.590
Mark Perlberg: and it is like one of the coolest areas in town to live. They just opened up this place called Optimus Hall, where they redesign the old paper mill. It all these markets, now that guy probably got a historical tax credit. That's another conversation.
266
00:44:08.640 --> 00:44:18.720
Mark Perlberg: But these they it was an area that is, that is, you would probably say, is gentrifying, and is hip and fun and property costs are pretty high.
267
00:44:18.820 --> 00:44:31.400
Mark Perlberg: so you know, and then other areas that aren't so much, you know, lower income areas. Some of it may be urban us, maybe rural areas with lower population density that they're trying to build out as well.
268
00:44:31.440 --> 00:44:36.860
Mark Perlberg: So it's not. It's not just high crime. Scary places that we're talking about here.
269
00:44:36.960 --> 00:44:51.660
Kirk Walton: That's right. A a. In fact, they use the 2010 census as the economic data to run the screen of all there's there's like 8,800, and change census tracks in the country
270
00:44:51.740 --> 00:45:02.090
Kirk Walton: at least there were under the 2010 cents. and they ran a statistical screen, and you know, low income for purposes of opportunity Zone designation. Eligibility
271
00:45:02.330 --> 00:45:09.950
Kirk Walton: was basically 40 0f all census tracks past the screening, and could have been an opportunity zone.
272
00:45:10.070 --> 00:45:15.800
Kirk Walton: After that, within a few months of the passage of the statute, each State had a deadline
273
00:45:15.890 --> 00:45:19.050
Kirk Walton: where they had to designate which of their
274
00:45:19.220 --> 00:45:23.650
Kirk Walton: census tracks that we're eligible. They could pick one fourth of them
275
00:45:23.740 --> 00:45:41.980
Kirk Walton: and make them opportunities. It's almost like you got a list, and you could put a gold star next t0 0ne out of every 4. And so you ended up with about 11% of all the census tracks became opportunity zones, and they cover about 16% of the surface area of the country. They're literally everywhere, and they are in markets that are high, prime, and high risk.
276
00:45:42.000 --> 00:45:55.200
Kirk Walton: but they are also in markets that have significantly rebounded because they started with the 2010 census. This is now 2023. There are a lot of things that have happened in the last 13 years in certain markets.
277
00:45:55.210 --> 00:46:07.640
Kirk Walton: and some of these census tracks are opportunity zones, and have no business, you know, really being opportunity zones, we they are Pr. And that's one of the criticisms, and that's one of the things that would be corrected
278
00:46:07.640 --> 00:46:17.570
Kirk Walton: if the Extension Bill that was proposed last year, and which we assume will get reintroduced this year. If that passes they will be able to correct this oversight.
279
00:46:18.700 --> 00:46:33.480
Kirk Walton: You had no idea what an opportunity zone was when the States had to determine which census tracks call opportunity zones. The program was so new nobody understood it, and so another benefit of the proposed legislation
280
00:46:33.480 --> 00:46:41.290
Kirk Walton: would allow States to nominate new census tracks, you know, including areas that had no population. you know, if you had no
281
00:46:41.590 --> 00:46:57.330
Kirk Walton: population like a census track that is urban and industrial. You'd want to allocate money towards those census tracks to, and you can't, because there was no income, no household income, because there were no households. So those are things that would get fixed.
282
00:46:57.380 --> 00:47:04.520
Kirk Walton: But yeah, we have projects in markets where rents have gone up 40% here over here 28% year over year.
283
00:47:04.680 --> 00:47:11.950
Kirk Walton: and we're doing housing in those markets. You don't need to dangle a big tax incentive to make me want to go there.
284
00:47:12.080 --> 00:47:16.140
Kirk Walton: But that's what Congress did. And yeah.
285
00:47:16.260 --> 00:47:29.340
Kirk Walton: we needed the tax benefits to do some of our projects. There are some projects that we would not have done. because we wouldn't have looked so closely in those markets if they weren't opportunity zones. They all pencil out just fine.
286
00:47:29.350 --> 00:47:32.780
Kirk Walton: But what it did is it attracted our attention to those markets.
287
00:47:32.940 --> 00:47:41.930
Kirk Walton: And yeah, we're going into markets where you have significant rent growth, significant job growth, and they have a good population growth that are als0 0pportunity zones.
288
00:47:42.150 --> 00:47:45.790
Mark Perlberg: So what was interesting here. So let's talk about that. So
289
00:47:46.140 --> 00:47:49.910
Mark Perlberg: with with legislation and opportunities on, because.
290
00:47:49.940 --> 00:47:54.700
Mark Perlberg: you know, we we used to have it now. The Q. And a.
291
00:47:55.010 --> 00:48:14.990
Mark Perlberg: What year was was that inactive? So i'll give you that full history because there's an interesting tidbit about this. That explains one of the quirks it was. Some of the benefits are are kind of sun setting here, but the qualified opportunities on legislation is, is you? It's a bipartisan
292
00:48:14.990 --> 00:48:29.520
Mark Perlberg: tax incentive that you know it's helping out the people on all the way on this side of the spectrum who want to reduce our cap gains tax. It was innovated by the founder of Napster. Yes, that gains tag. And then, on the other side, is meant
293
00:48:29.520 --> 00:48:43.950
Mark Perlberg: to inject capital into communities that needed the capital, and what a tax to incentivize people to invest in beautify under developed areas. But the the legend, there is a there is a time that
294
00:48:43.950 --> 00:49:03.440
Mark Perlberg: We've already lost some of the benefits on the step up basis, and but we're and we're it's set to sunset. But we there's also some deliberation on how we're going to extend this. So there's a there's a lot to talk about there. Can you fill us in on? You know where we're coming from, and where we're going on with the future of Q. A.
295
00:49:03.680 --> 00:49:21.980
Kirk Walton: Yeah. So i'll tell you you're right, Shawn Parker, who started Napster, which, by the way, one of my clients backed as a venture capitalist way back when that's how far back we go in Silicon Valley. I don't know how many of your listeners are even old enough to remember, Napster.
296
00:49:21.980 --> 00:49:26.340
Kirk Walton: that one song to download it.
297
00:49:26.340 --> 00:49:56.340
Kirk Walton: I can neither confirm or deny anything involvement with NASA, but you know, pirating software it turned out to be your music, but I heard it was fun, anyway, but he became the he. He became the president of Facebook. When they moved to to the west Coast from Harvard, dropped the the from Facebook, and you know you've seen the movie and heard the stories, and he's got a significant amount of capital gains doesn't want to pay tax on. There are a couple of other backers, and they set up a economic innovation group
298
00:49:56.340 --> 00:50:11.000
Kirk Walton: which is this lobbyist and think tank when they hired a bunch of economists to study the economy and things that they could do, and they proposed they came up with the idea of proposing a tax legislation that evolved and became the Opportunity zone.
299
00:50:11.000 --> 00:50:40.680
Kirk Walton: Provisions in the tax cuts and jobs act t0 2017. It was pitched as a standalone tax incentive in 2,015 and didn't go anywhere. It was pitched again in 2,016 introduced, but didn't go anywhere, and in 2,017 the tax cuts and jobs act as being worked out. And this is a budget reconciliation bill rather than a true tax legislation, and so you only needed 50 votes instead of 60 votes. And that's important, because there were certain provisions in the original legislation, including reporting requirements
300
00:50:40.680 --> 00:51:00.460
Kirk Walton: that would, you know, require me, as a you know, opportunities on fund developer, to tell you how many jobs we've created, how many housing units we created which census tracks and all of that, you know. Stuff like that. Those provisions there's no accounting score allocated to. There's no budget generated. There's no government, cost.
301
00:51:00.460 --> 00:51:03.110
Kirk Walton: and so they could be challenged, and it would delay the
302
00:51:03.110 --> 00:51:31.510
Kirk Walton: the passage of the tax cuts and jobs act. So they intentionally excise those provisions at the eleventh hour with full intent to reintroduce them, when in a tax bill it was backed in both 20152016, and in 2,017, and the current iteration of the Extension Bill last year back. Primarily the primary sponsors were Senators Tim Scott, Republican from South Carolina, and Senator Cory, Booker Democrat from
303
00:51:31.510 --> 00:51:49.730
Kirk Walton: New Jersey, and there are a bunch of other people that have signed on board from both sides of the aisle, and it was introduced in both the House and the Senate. But it's interesting that we have this clunky thing where all of the game comes back on December 30 first of 2,026.
304
00:51:49.730 --> 00:51:55.290
Kirk Walton: Now the Irs has broad discretion to draft regulations.
305
00:51:55.290 --> 00:52:12.290
and that was really essential, because the statute itself was dead on the table when it was passed, because it required the opportunity zones to invest all of the gain and the cash within 6 months. Well, you can't get through planning and zoning approval within 6 months. So nobody was going to do anything.
306
00:52:12.290 --> 00:52:18.850
Kirk Walton: But you know that the Irs had the ability to create regulations, and so they manufactured a rule out of thin air.
307
00:52:18.870 --> 00:52:27.350
Kirk Walton: the reasonable working capital safe harbor. And that is basically, if you have cash in a qualified opportunities on business, and you have a written plan
308
00:52:27.520 --> 00:52:40.410
Kirk Walton: to spend that cash, and you substantially comply with the spending of the cash, according to your written plan, over the next 31 months you have pause or turned off
309
00:52:40.470 --> 00:52:51.660
Kirk Walton: the test that would determine whether you have enough good property or bad property, whether you have Q. O Zvp or not, and that was manufactured out of thin air, but was necessary to give
310
00:52:51.680 --> 00:53:02.290
Kirk Walton: life to the program. So now I don't have to get all my cash on the ground at 6 months I actually have 6 months to come up with my written plan, and then my written plan over 31 months. I got a long window of time
311
00:53:02.310 --> 00:53:08.980
Kirk Walton: to figure this out and do due diligence, and get through planning and zoning, and permits, and all that. And so now it had life
312
00:53:09.060 --> 00:53:28.610
Kirk Walton: they were. They wanted to create, and they even asked, during the comment period if there was analogous comparable tax provision where you could get an interim gain and have a tax free something like 1031 without an actual section 1031, and they didn't include anything like Section 1031 0r 1045 0r any of those.
313
00:53:28.610 --> 00:53:31.120
and so the best they could do.
314
00:53:31.160 --> 00:53:37.640
Kirk Walton: And they lamented this and they comment that you read. The commentary from the Treasury is, I can say, your money that comes back.
315
00:53:37.670 --> 00:53:54.570
Kirk Walton: You can sit on it, and it won't count against your 90% test, for up t0 12 months from when you get money back from an interim, gain from cash out refi sale of asset pad sale things like that, which is where you know we caught on like oh, we can reinvest it t0 0ther assets.
316
00:53:54.950 --> 00:53:55.670
Kirk Walton: But
317
00:53:55.850 --> 00:54:09.590
Kirk Walton: December 30 first 2,026 is the actual language that's in the statute, and it's really hard to interpret. December 30, first, 2,026 to mean anything other than the date that is December 30, first 2,026, and that is because
318
00:54:09.880 --> 00:54:15.890
Kirk Walton: they copied and pasted the Microsoft word file from the proposed 2,016 legislation.
319
00:54:16.010 --> 00:54:32.070
Kirk Walton: and dropped it into the tax cuts, and Jobs act at 2,017 at the eleventh hour, and nobody caught that. It said December 30, first, 26, rather than something like 10 years from the effective date of this statute, or 10 years from when you put your money in the cough.
320
00:54:32.210 --> 00:54:39.600
Kirk Walton: it says December, 30, first 2,026. So that was kind of an oversight and poor drafting. But
321
00:54:39.890 --> 00:54:41.840
Kirk Walton: we got the you know we got the
322
00:54:41.880 --> 00:54:52.310
Kirk Walton: it's that's how you ended up with 26, as when the money all comes back is because that's what the proposed 2,016 legislation set, and that's 10 years after 2,016,
323
00:54:52.830 --> 00:55:05.720
Mark Perlberg: similar to the story of Q. Ips with, you know. And then they made some adjustments. So what do so what do we think is gonna happen here on? Do you think they're going to renew the timeline in our abilities to do? Q. A.
324
00:55:06.610 --> 00:55:09.190
Kirk Walton: I hope so. I think so. And they, should
325
00:55:09.250 --> 00:55:18.870
Kirk Walton: they should, they should kick it out from, You know 26 t0 28, which is what the proposed legislation would do, They would get rid of census tracks that are too good to be true.
326
00:55:18.940 --> 00:55:28.050
Kirk Walton: and give States the opportunity to nominate replacement census tracks that are, you know, make more sense as a place to put your, you know, tax incentive
327
00:55:28.080 --> 00:55:40.650
Kirk Walton: incentivized, you know, tax benefits. They would impose the reporting requirements that nobody in my industry has any problem providing that information. But they would, you know.
328
00:55:40.650 --> 00:55:49.740
Kirk Walton: create a system and a a framework within which to, you know, do that reporting? And they would reinstate the 10, and the 15%
329
00:55:49.760 --> 00:56:19.150
Kirk Walton: discounts which are a rounding error in the grand scheme of things. But you know it's a it's a nice little shiny thing that gets some people's attention. But truth be told, it's all about the long term ownership of real estate without that, you know I If I had capital gain on December 30, first of 26. I put it in an Opportunity Zone fund within 180 days of that, even if I didn't get any deferral of gain, even if I didn't get a 10 0r 15 discount, because it's a it's the only way you can own real estate
330
00:56:19.310 --> 00:56:22.080
Kirk Walton: for a long period of time without paying tax.
331
00:56:22.800 --> 00:56:25.340
Mark Perlberg: Interesting, interesting. So
332
00:56:28.220 --> 00:56:30.740
Mark Perlberg: what i'm thinking here now is
333
00:56:32.170 --> 00:56:39.310
Mark Perlberg: so s0 0bviously, you know I don't see why they wouldn't. I don't see any reason why not to to this.
334
00:56:39.350 --> 00:56:56.240
Kirk Walton: So you know it is changing communities. I i'll tell you that you know we can talk about the enormous breaks and benefits to the investors, and it is an enormous, uneven playing field, and I've touched on that a little bit about how the the the numbers are so compelling
335
00:56:56.250 --> 00:57:09.000
Kirk Walton: that even if you get close to the kind of returns you think you'd get a normal real estate. Your opportunities on real estate is going to come out ahead because of the tax benefits it's in, and if you get the same, returns it, it's an enormous
336
00:57:09.180 --> 00:57:23.780
Kirk Walton: impact to you and your future generations. But it is also changing communities, you know, like one of the projects we acquired. We there's the old Caesars or Harris Casino, and downtown Reno.
337
00:57:23.780 --> 00:57:42.060
Kirk Walton: you know Biggest little city in the world. Arch sign touches our project there, and it covers 2 city blocks, and n0 0ne's going to Reno for entertainment and gambling anymore, like they were when this thing, this I have buildings there, the old Reno Bank Building. I was built, I think, in 1000 911915is part of this project. We have
338
00:57:42.060 --> 00:57:52.550
Kirk Walton: 3 towers that are built in multiple decades. We had almost a 1,000 hotel rooms and 2 city blocks, with the Sky bridge between them. An enormous asset.
339
00:57:52.570 --> 00:58:11.290
Kirk Walton: But gaming is dwindling. Entertainment is dwindling. Sam is Sammy Davis junior showroom is there? This theaters? There is dressing rooms there, and and people Aren't, you know, going there as an entertainment destination the way they were many decades ago.
340
00:58:11.350 --> 00:58:14.630
But what the city needs is housing
341
00:58:14.810 --> 00:58:27.470
Kirk Walton: is becoming the next Silicon Valley. It's in the midst of a tech explosion. You have Tesla that has built the Giga factory out there, one of the lar, one of the largest or the largest building in the world. Once finished.
342
00:58:27.470 --> 00:58:43.540
Kirk Walton: all of the batteries, you know Tesla produced are going to be there. They just announced a couple of weeks ago. There's semi trucks are going to be built there. You have server farms all over the place. If you have something stored on icloud.
343
00:58:43.540 --> 00:58:49.700
Kirk Walton: It's physically, most likely physically located in Reno and a server farm out there. You have all of the tech companies with.
344
00:58:49.750 --> 00:59:00.860
Kirk Walton: you know, 1,000 acre parcels that have servers. You have tech jobs there because it's just over the border from California. This. It was already growing before Covid.
345
00:59:01.060 --> 00:59:09.340
and we got interested in it when we saw an old rundown hotel. They had 150 square foot
346
00:59:09.430 --> 00:59:13.770
Kirk Walton: units that we're renting for $750 a month
347
00:59:14.050 --> 00:59:23.950
Kirk Walton: 150 square foot running for sonar and 50 bucks a month. That's 5 bucks a foot, you know that's like insane number. So that's when we got interested in it.
348
00:59:24.000 --> 00:59:36.010
Kirk Walton: It didn't need as many hotel rooms. It needed apartments, but I have 3 towers, 26 stories, 24 stories, and 18 stories, with gorgeous views of hotel rooms that were converting into apartments.
349
00:59:36.240 --> 00:59:38.700
and that's why we got it
350
00:59:39.170 --> 00:59:42.870
Kirk Walton: but there's enough commercial space that will be treated as a commercial asset.
351
00:59:42.970 --> 00:59:57.980
Kirk Walton: The Starbucks is already open. Come to Reno. I'll show you, and you can get a cup of coffee. Now, the Starbucks. The restaurants are gonna be online soon next couple of months, and we got rolling openings over the next 15 months, and the whole thing will be converted. We bought it super cheap.
352
00:59:58.060 --> 01:00:17.420
Kirk Walton: because Caesars and Eldorado were in the midst of a merger, and they needed to divest it, and I suspect they didn't want to sell it to another hotel Casin0 0perator. So they sold it t0 0ur group, knowing that we were gonna convert it to apartments, and you can't do a casino. It's a send business under the opportunity Zone rules.
353
01:00:17.420 --> 01:00:20.140
and so we got it crazy cheap.
354
01:00:20.250 --> 01:00:32.460
Kirk Walton: Renovate it. Get this massive Q. I. P. Deduction. We've got about 60 million a cash in the project, 142 millionconstruction loan. and I think that you know almost all of that budget
355
01:00:32.760 --> 01:00:34.980
Kirk Walton: is we're not expanding.
356
01:00:34.990 --> 01:00:49.500
Kirk Walton: We're not. I mean, we are doing some landscaping, but we're not like building out. I mean other than what's allocated to the land and the landscaping the exterior stuff. All of that's going to be an interior improvement cost on the existing. So most of that 200, and
357
01:00:49.730 --> 01:00:53.010
Kirk Walton: you know, 1 million budget is going to be Q. I. P.
358
01:00:53.190 --> 01:00:59.150
Kirk Walton: On 60 million in cash in the deal. We're going to end up with passive losses in excess of the cash in the deal.
359
01:01:00.650 --> 01:01:11.090
Mark Perlberg: Very cool, very cool. So what is the first step for someone who's who is interested in in in investing with you in.
360
01:01:11.920 --> 01:01:25.840
Kirk Walton: You know the first step is to have a capital gain, or to have a unrealized capital gain that you're willing to sell, and like we talked about, there's some benefits to doing that. But let me finish. One little thought about Reno in particular.
361
01:01:26.170 --> 01:01:37.180
Kirk Walton: We had a 1 million square feet that had asbestos that needed to be remediated there. Wasn't enough people with asbestos remediation skills in the entire state of Nevada. To get that done quickly
362
01:01:37.270 --> 01:01:41.300
Kirk Walton: we had to train, You know, hundreds of people
363
01:01:41.720 --> 01:01:49.950
Kirk Walton: to get their asbestos led, and Mole, you know remediation certifications, and Osha was happy with the work and the training
364
01:01:50.170 --> 01:02:06.280
Kirk Walton: there wasn't housing for these workers, but we had one of our 3 towers. That was new enough that didn't have asbestos. so we put our workers up for free in these old hotel rooms. and we trained them and paid for their training and got them a new skill.
365
01:02:06.820 --> 01:02:20.720
Kirk Walton: and we also held on to some of the hospitality staff, and we cook them 2 meals a day. One of the quirky things about Reno is there's no fast food, because the casinos. Don't want you leaving their property to go get food. So you have construction workers.
366
01:02:20.750 --> 01:02:27.810
Kirk Walton: you know, that need to be fed, and in the midst of Covid. This was really fortunate. In the midst of Covid.
367
01:02:27.940 --> 01:02:32.580
in Nevada you could have 4 people in an elevator. Well, I've got hundreds of workers.
368
01:02:32.840 --> 01:02:43.020
Kirk Walton: 4 people in an elevator at a time. Even with how many elevators we got there it would take forever just to do the lunch breaks in this stuff. So we created a a community there
369
01:02:43.090 --> 01:02:48.480
Kirk Walton: where they got house trained, worked messile style, 2 meals a day
370
01:02:48.540 --> 01:03:03.320
Kirk Walton: and a safe place to live, and it really changed. Some people's lives. There was a guy who was there was a guy who was homeless, living in his car. He had broke his back and got. He was construction laborer broke his back.
371
01:03:03.480 --> 01:03:09.780
Kirk Walton: and he couldn't go to the job site with his back brace, and so he lost his job, and it got behind on rent and got evicted.
372
01:03:09.790 --> 01:03:15.220
Kirk Walton: and one of our ships supervisor started to talk to him because it ran into him just near our project, and
373
01:03:15.310 --> 01:03:19.600
it got an apartment, you know, a hotel room in our place
374
01:03:19.670 --> 01:03:24.760
Kirk Walton: in a new job scale, and he makes more money than he ever did before in his life, I mean.
375
01:03:24.810 --> 01:03:35.890
Kirk Walton: you know, and the there's some civic leaders in Reno who referred t0 0ur project as an economic dream come true, and the biggest news to hit downtown Reno in decades.
376
01:03:35.920 --> 01:03:43.190
Kirk Walton: So this tax legislation is truly transforming communities and benefiting creating American jobs.
377
01:03:43.260 --> 01:04:02.410
Kirk Walton: and, you know, benefiting the workers and the the trades people and the communities that we're doing this in while simultaneously giving enormous benefits to the investors it's. It's a true win-win-win for everybody and it really should be extended. If somebody wants to invest with us.
378
01:04:02.410 --> 01:04:21.750
Kirk Walton: you know they should go t0 0ur website or give me a call or take, send me an email and get in touch with us, and we could talk about it. But you need to start with a capital gain, or either recognize or unrecognized, and plan on selling it. It's great for someone who's in the midst of a 1031 exchange.
379
01:04:21.750 --> 01:04:27.410
Kirk Walton: This is so much better than a 1031 Exchange, because, you know you, there's no tax now like a 1031.
380
01:04:27.560 --> 01:04:39.270
Kirk Walton: But we're generating passive losses in excess of the cash going in on our rehab projects, and we think we can still do that for the next few years. And if so, then there's no text going in like at 1031, and there's not going to be
381
01:04:39.300 --> 01:04:50.470
Kirk Walton: any tax and 26. When this comes back. I am pretty optimistic that we'll get the Extension bill, so it probably won't even come back until 2,028. But even if it doesn't the way it is drafted, right, now
382
01:04:51.090 --> 01:04:54.330
it's an insane giveaway and insane benefit
383
01:04:54.380 --> 01:05:01.840
Kirk Walton: to them. So if you got a 1031 exchange don't do the 1031 exchange. Take you o it to yourself to take a look at this
384
01:05:01.990 --> 01:05:06.990
Kirk Walton: I love 1031 exchanges, and when this thing goes away i'm going to be back on the 1031 I change bandwagon.
385
01:05:07.440 --> 01:05:12.130
Kirk Walton: But because this is so impactful.
386
01:05:12.620 --> 01:05:31.820
Kirk Walton: This is significantly better than a 1031 change for the vast majority of cases that we've looked at, and so you owe it to yourself to look at that. If you have capital gain from stock, or like I said, even the sale of a residence personal residence that's over, you know, 500 grand. You can throw the access gain into this.
387
01:05:31.870 --> 01:05:38.450
Kirk Walton: We have. We have 2 strategies like, I said. We're the only ones that are talking about the ability to reinvest
388
01:05:38.480 --> 01:05:55.690
Kirk Walton: and compound on itself inside the tax shelter.
389
01:05:55.730 --> 01:05:56.990
Good will.
390
01:06:01.780 --> 01:06:08.550
Mark Perlberg: We are just thinking to myself. We we were talking earlier about how we can use the losses from the cost Sa.
391
01:06:08.720 --> 01:06:21.600
Mark Perlberg: T0 0ffset future tax deferred gain. But what if you don't have real C professional tax status, and can't use the the deferred. Use those losses as not passive t0 0ffset
392
01:06:21.620 --> 01:06:30.320
Mark Perlberg: portfolio gain. Does that still apply to a. To the point where that the losses you get from the rental K One.
393
01:06:30.510 --> 01:06:31.160
Hmm.
394
01:06:31.510 --> 01:06:47.210
Mark Perlberg: Would it still help you with mitigating that recognition of the deferred cat gains from maybe a stock portfolio transaction or something else. That's an excellent question. So everybody is going to get some tax benefit from the depreciation deductions and the passive losses it's all timing.
395
01:06:47.270 --> 01:07:03.680
Kirk Walton: If you have other passive income right now, it benefits you now even before 26. If you roll over, passive capital gain, and you Don't, have any other passive income between now and 2,026. Then it'll offset the passive capital. Gain that comes back on your 2,026 return.
396
01:07:03.830 --> 01:07:22.110
Kirk Walton: If you don't have any passive income now, and you, Don't, have any passive capital gain rolling in gain from the sales stock, or something like that, or primary residence. Personal asset that rolls in. Then those losses are going to keep going forward until your real estate portfolio produces a taxable passive income, or
397
01:07:23.330 --> 01:07:37.420
Kirk Walton: at the end of the day. If you sell the asset, and you still have penta passive losses. then those passive losses are freed up and become ordinary losses, and can offset everything else. So everybody gets the benefit of this passive losses at some point.
398
01:07:37.520 --> 01:07:40.510
Kirk Walton: With respect to the person who's got capital gain.
399
01:07:40.550 --> 01:07:46.390
Kirk Walton: You know we have seen this. If you've got a client who has a 1 million in capital gain and a 1 million and capital losses.
400
01:07:46.400 --> 01:07:50.890
not passive losses, but capital losses. You may think he doesn't have any capital gain
401
01:07:52.190 --> 01:08:06.520
Kirk Walton: You same thing applies there you can take your You can go down here 1099 be your proceeds from your broker transactions and circle all the ones in the last 180 days that are capital gain, and add all of those up.
402
01:08:06.590 --> 01:08:23.189
Kirk Walton: and drop that amount into the opportunities on fund. The ones that have produce losses. All those losses will still be there. You know what your Cpa. You know what happens. A capital losses. You can take 3,000 gets ordinary income the rest of it. We're going to roll forward to next year next year, next year, and in 2,026. When these capital gains come back.
403
01:08:23.240 --> 01:08:25.960
Kirk Walton: those losses will still be there t0 0ffset against them.
404
01:08:26.870 --> 01:08:28.340
Mark Perlberg: Great Great Great
405
01:08:28.720 --> 01:08:48.060
Mark Perlberg: interesting stuff here. Now, when I first did this Q. And a. Webinar, I did it because I didn't get enough chance. I didn't my clients weren't interested in that. I really like the idea. So I thought I, if I did a Webinar, I would force me to learn about it, to talk about t0 0thers.
406
01:08:48.109 --> 01:09:03.240
Mark Perlberg: and having this conversation makes me a whole lot more excited hearing. You break down the numbers and run these scenarios, and really gives me a deeper insight into how wonderful these can really be.
407
01:09:03.359 --> 01:09:10.850
Mark Perlberg: and in all the things that we can do in just the different ways that we can look at, how all the numbers get come together.
408
01:09:10.939 --> 01:09:13.439
Mark Perlberg: So I mean i'm really excited to now
409
01:09:13.450 --> 01:09:24.920
Mark Perlberg: have an even deeper insight when I show this to my clients, and we do have you know, i'm thinking about. I have a real estate professional tax status client who has a capital gains on the sale of a business that is non real estate.
410
01:09:25.010 --> 01:09:39.470
Kirk Walton: Yep, we we've done that. We've done that, too, Like, I said. We have a client who
411
01:09:39.790 --> 01:09:52.140
Kirk Walton: qualified for a real estate professional status. S0 0ur losses are going to be ordinary, which means the capital gain that comes back on his 26 return, which was not a passive activity. It was, from, you know, sale of of
412
01:09:52.370 --> 01:09:53.890
Kirk Walton: closely out business.
413
01:09:53.910 --> 01:10:12.700
Kirk Walton: All that capital gains can be offset by the losses so absolutely you can do that, You know. One thing I love about your approach is is, you're proactive. You're like, what can I? What can I do to help my clients tax situation prior to the end of the year?
414
01:10:12.700 --> 01:10:30.490
Kirk Walton: You're not looking at which numbers to put in the boxes on April fifteenth. You're looking at it. What can I do to plan? That's the way I was, I did Tax returns for 20 years as a tax lawyer for my clients, for them and their entities, and s0 0n. I'm familiar with all of these strategies and can see the big picture that's one of the things I excel at
415
01:10:30.490 --> 01:10:37.140
is planning around all this stuff, and so I see that I can talk to you and your clients about how
416
01:10:37.140 --> 01:10:54.710
Kirk Walton: the I I You know I've been obsessive about the opportunities on regulations since they came out, in order to protect my clients who had significant capital, gain events when the regulations were coming out. Nobody else was going to help them. So I had a you know 100 millionreasons to figure this out and do it right.
417
01:10:54.730 --> 01:11:08.060
Kirk Walton: But I can also see how it fits into is state planning a multi-generational. Well transfer strategies. You can set this up in a grant or trust. and have all of the growth outside of your estate.
418
01:11:08.660 --> 01:11:13.260
So as part of a multi generational wealth. Transfer plan.
419
01:11:13.270 --> 01:11:16.270
Kirk Walton: This is the perfect asset to leave to your children
420
01:11:16.360 --> 01:11:31.130
Kirk Walton: and a at Children's Trust, because it's ill liquid, it's cash flow, producing, and all the growth is going to be tax-free to them. and even if you forgot to be proactive, you know you you got 180 days if you just found out
421
01:11:31.210 --> 01:11:35.130
Mark Perlberg: you just, you know, couldn't come up with any ideas to
422
01:11:35.140 --> 01:11:44.780
Mark Perlberg: to mitigate the taxes on your portfolio gains, or whatever. Now you know you, you still might be a chance to take advantage of this stuff after the fact.
423
01:11:44.930 --> 01:11:59.930
Kirk Walton: Yeah. And for the Cpas that are on the call, this is a call to action. I I don't wait until April fifteenth to look at your clients. 1099 bs for your wealthy clients. You should be getting in front of them, asking them for their realized and unrealized gain, loss, report.
424
01:12:00.020 --> 01:12:10.730
Kirk Walton: and cause. You only have 180 days. So if you wait till April fifteenth, and you had some client who had a significant gain in September. You could have saved him millions of dollars in taxes.
425
01:12:11.120 --> 01:12:19.710
Kirk Walton: but you wouldn't know about it. So this is where the proactiveness of your approach is hugely important. In fact.
426
01:12:20.190 --> 01:12:27.460
Kirk Walton: there's going to be somebody who has a big capital gain event, and the Cpa is going to tell them about it, and it's going to be 181 days after the event
427
01:12:27.550 --> 01:12:34.180
Kirk Walton: he's gonna be so pissed he's gonna file a lawsuit. Why didn't you tell me about that sooner, you know, like, cover your own base.
428
01:12:34.280 --> 01:12:48.920
Kirk Walton: and you know, send out an email to your clients. If you had a significant capital gain, you only have 180 days to do this. Please contact me soon. So you don't get hit with that pissed off client ticked off client. Sorry about that. Ticked off client.
429
01:12:49.710 --> 01:12:55.620
Mark Perlberg: Totally cool, dude we you could say whatever whatever the heck you want to say.
430
01:12:55.630 --> 01:13:03.430
Kirk Walton: Yeah, the client would understandably be frustrated. If there was a way he could have saved millions and taxes, and you didn't tell him about it.
431
01:13:03.590 --> 01:13:19.880
Mark Perlberg: Yeah. And this is why we're slow to take on clients. Because if we miss an opportunity, we find that this we're doing a disservice t0 0ur clients, and there's so much research that we do in training to take on a client. Right now. We're diving into some new opportunities with trust and college financial planning.
432
01:13:19.880 --> 01:13:38.360
Mark Perlberg: and it takes a ton of time to get this stuff up and running and implement with our clients into it.
433
01:13:38.760 --> 01:13:40.210
Mark Perlberg: And so
434
01:13:40.310 --> 01:13:55.650
Mark Perlberg: one thing i'm wondering for you from you is so. Can you tell our audience? How can they invest in your Q. A's. Or be considered? I know they likely have to be a an accredited investor.
435
01:13:55.700 --> 01:14:13.280
Kirk Walton: a a. And thanks for that. If you are an investor who has an 8 figure gain, we can set up and talk about setting up a a qualified opportunity phone just for your game, and then you can pick and choose between our projects, and we've done several of those we've done 6 0f those so far.
436
01:14:13.280 --> 01:14:25.640
Kirk Walton: If you have, you know more than a 100,000 and gain. But you know not quite 8 figures. Then you're gonna go int0 0ne of our pooled multi investor funds, and we have 2 0f those that are available right now.
437
01:14:25.640 --> 01:14:44.180
Kirk Walton: and they invest in the same projects side by side. The only difference is, some people do want income from their real estate holdings, and so we have the distribution strategy. Qf: what that does is when money comes back from the projects, whether it's a sale of a pad or a cash out refi or rents from operations.
438
01:14:44.180 --> 01:15:02.740
Kirk Walton: Money comes from the project to the fund and goes from the fund to the investors. So they're getting money. The reinvestment strategy. Qf: Really creative names. I use the reinvestment, strategy, queue up, takes money from the projects, and when they refi or sale pad or get cash flow operations goes from the project to the fund.
439
01:15:03.050 --> 01:15:11.050
Kirk Walton: and it reinvest into another and another, and another project while that window is still open, which is again about the next 5 years.
440
01:15:11.050 --> 01:15:36.460
Kirk Walton: After that it looks just like the distribution strategy. But it so. What it'll do is it'll take capital gain and create a broader footprint of holdings. It'll have more assets, more depreciation, deductions for more basis, for more qualified non recourse financing on the heather projects in addition to the first wave of projects, and then all of those will grow, tax free and produce depreciation, deductions, and cash flow. So for both of those
441
01:15:36.460 --> 01:16:08.450
Kirk Walton: you you're gonna get a really tax, efficient cash flow stream eventually, and then a big pop down the road tax free that you don't have to die like the swap until you drop. You don't have to drop to get the full step up and basis here, which I think is a a big benefit, so you can check out our website. Gpwm funds.com, and you'll see our projects. You mentioned historic tax credits. We've got one project that we're doing that. We're you know we're getting. We're getting about 5 million bucks and historic tax credits on top of the opportunity Zone
442
01:16:08.450 --> 01:16:21.290
Kirk Walton: benefits we like rehab, because it's faster to market rather than new construction, and you can buy cheaper. And so most of our projects are rehab, which very few other up zone funds are looking at.
443
01:16:21.410 --> 01:16:35.670
Mark Perlberg: and that allows me, when you do those updates, you donate the old furniture and fixtures. If they're in decent quality, you donate them, you get a terrible deduction equal to the fair market value of those items, so get an additional tax savings. There.
444
01:16:35.790 --> 01:16:49.420
Kirk Walton: that's right. You get a cost sa study on your acquisition, and anything that's donatable. You donate anything you're not going to use you dispose of, and so you get it right off for that, and then your new expenses to improve it. Our interior qualified improvement property.
445
01:16:49.540 --> 01:16:56.370
You get a cost sag on that, and you're getting massive tax benefits in addition to
446
01:16:56.620 --> 01:17:02.950
Kirk Walton: Yeah. So everything you've been talking about on your all your other episodes, your podcast. You can do inside your opportunities on fund.
447
01:17:03.230 --> 01:17:23.110
Kirk Walton: and it it just it adds an enormous. It takes it to the next level. It's. It's saying it. There's never been anything like it. I've been a tax lawyer since the nineties. I've never seen anything like this. It is a unique window and time and a unique opportunity for the wealthy to change communities, change lives
448
01:17:23.110 --> 01:17:38.330
Kirk Walton: and set up their, You know family and their, you know. Children in, you know, for long term tax, free growth of real estate. Nothing else like it out there, anyway. Great to be on your podcast.
449
01:17:38.370 --> 01:17:54.860
Kirk Walton: You can, you know, find us a Gpw. On funds, Griffin. Private Wealth Management. It's Gpw. On funds and check out our projects and get in touch with us. Love to help you out and talk about how this can help you and your unique individual situation it really is.
450
01:17:54.860 --> 01:18:00.180
Kirk Walton: You gotta look at the totality of the picture for each person to figure out. You know how how this fits.
451
01:18:00.530 --> 01:18:02.370
but there's nothing like it.
452
01:18:02.880 --> 01:18:32.840
Mark Perlberg: Awesome, Kurt: Thank you so much for your time. I really appreciate this. Lots of really valuable insight here that I wish I had heard about when I first heard about the Qo. Z. To really break down the numbers, so i'm excited to show this t0 0ur clients, and if you're listening, subscribe to the Podcast and the Youtube Channel, and anywhere else you can find us, and you know where to find us. If you're if you can send us some good accountants and info, I really want you. You could, if you need an account, and we'll help you out to
453
01:18:32.840 --> 01:18:45.560
Mark Perlberg: qualify info and mark, pr0 0r cpa.com. But i'll like you even more of you. Send me someone to join our team so you can. I'm just sending that out there. And you guys hope you guys enjoyed this episode.
454
01:18:45.700 --> 01:18:47.020
Kirk Walton: Thanks, Mark. Take care.
455
01:18:47.270 --> 01:18:49.040
Mark Perlberg: Thanks. Oh.