heirs and they’ll receive that property at the fair market value on the date of your death by eliminating all of this capital gains depreciation recapture that you should have paid during your lifetime. In theory, you can just keep purchasing larger and larger properties, making more and more cash flow, but never actually paying any taxes on that property. In the interview, Castelli also talked about opportunity funds, a new way to possibly put off or completely eliminate capital gains taxes. Opportunity funds are a way to invest in opportunity zones, which low-income communities’ governors have identified, and the Treasury has approved. The funds come with tax incentives, including the ability to defer capital gains on a variety of capital assets. These include not just real estate, but also stocks, bonds, and more. A CPA can give you all the specifics. The timeline has the same 180-day rollover as the 1031 exchange, but you’re only required to roll over the capital gain, which means you’re free to do what you want with the money you invested.
Castelli gave this rundown of the numbers:
If you hold that capital gain in the fund for five years, you’re going to receive a 10% stepped-up basis in that gain. Let’s just say you have a $100,000 capital gain, and in five years, you receive the 10% step-up; you’re only going to pay tax on $90,000 of that capital gain. If you hold it for another two years for a total of seven years, it’s going to step up [an additional] 5% for a total of 15%, and you only pay tax on $85,000 of that gain. Now, if you hold that investment in the fund for 10 years, your investment in the actual fund itself will be tax-exempt. Just, say, that $100,000 you put into the fund; 10 years from now, it’s worth $150,000. That $50,000 capital gain is completely exempt from
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