Death and Taxes are certain…well maybe not so certain!


Kerr Financial Group

Kildare Asset Mgt.

Jeffrey J. Kerr, CFA



“The only difference between death and taxes is that death doesn’t get worse every time Congress meets.”
Will Rogers


Much has been written about the inescapability of death and taxes.  Healthier living combined with medial progress offers some of us a mortality rescheduling.  Nevertheless, there is a terminal aspect of our existence.

Concerning the second item, on July 1, 1862 President Abraham Lincoln signed the law that appointed the first Commissioner of Internal Revenue.  The law also implemented a 3% tax on income between $600 and $10,000 and a 5% tax on incomes over $10,000.

Public opposition resulted in the income tax being repealed in 1872.  After some back and forth in the late 19th and early 20th centuries, the 16th Amendment to the Constitution was ratified in 1913.  This allowed Congress to “lay and collect taxes on incomes…”  The first Form 1040 was introduced and strategies for tax reduction and tax avoidance soon followed.

From the beginning, taxes have been a controversial topic.  Taxpayers constantly seek ways to reduce the amount they owe and Wall Street is always willing to assist in the effort.  To this end, there is a new program that actually helps.

Within the Tax Cuts and Job Act of December 2017, there is a section “Invest in Opportunities Act” which sets up Qualified Opportunity Zones (QOZ).  State governors have already chosen the areas that were designated as QOZs.  If an individual or company has a realized capital gain, that amount is eligible for investment into a QOZ and will receive preferential tax treatment.  QOZ assets must be used to develop and revitalize these areas.

This is how the tax deferral and reduction work.  Investing your realized capital gain in a Qualified Opportunity Zone Fund will defer the tax owed.  There is a 10% tax reduction if the funds are invested for 5 years and an additional 5% tax reduction if held for 2 more years (7 years total).  Lastly, and perhaps most importantly, if the original Qualified Opportunity Zone Fund investment is held for 10 years, any appreciation in the value of the investment is completely tax free.

The eligible capital gains can be from the sale of any asset – property, building, business, stocks, bonds, artwork, collectables, etc.  But to capture the full 15% tax reduction, the investment must done in 2019.

Below is a time line illustration from Griffin Capital.  It provides a 10-year projection of key tax related events.

The formation of Qualified Opportunity Zone Funds has started.  And as this is being done, there are distinct differences on the how the investment vehicles are being structured.  The investment funds are generally being setup as either Real Estate Investment Trusts (REIT) or limited partnerships.   Further there are differences in the type of real estate development being done.  The appropriate choice is dependent on the investor’s goals, needs, and risk tolerance.

Death and taxes are certain.  However, taxes driven from capital gains have a new and unique chance to be deferred and reduced.  To get more information or learn more about this exciting opportunity, please contact us.


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