Opportunity Zone Fund Investment vs. 1031 Exchange

In my opinion the opportunity zone fund investment (OZ) is a superior method to defer taxes on capital gains for the following reasons:

1. Deferral of taxes via OZ lasts until 12/31/26.
2. 15% of gain is completely eliminated if the OZ investment is held for 7 years. The 1031 exchange has no similar provision.
3. In a 1031 exchange it has to be like kind real property. There is no like kind property requirement in an OZ as it can be real or personal or even a business.
4. There is no requirement to identify replacement property in 45 days in an OZ.
5. There is no need for a financial intermediary to handle the proceeds from a sale of property in an OZ like there is in a 1031 exchange.
6. In a 1031 exchange you have to reinvest the entire proceeds from the sale to avoid taxes. In an OZ, you only have to reinvest the gain within 180 days of the sale.
7. If you hold the OZ for 10 years, then none of the gain of the sale of the OZ is taxable. 

Foreign Tax Credit

The foreign tax credit is limited to the ratio of foreign taxable income to total taxable income and is calculated on form 1116. However, you don't need to use this form to claim a credit if your total foreign taxes paid for foreign passive income like dividends don't exceed $300(single) or $600(joint).

Alternative Minimum Tax (AMT)

The AMT is an alternative tax system based on fewer deductions and more taxable income. You pay the higher of AMT or regular tax.  For example no deduction for state and local taxes is allowed for AMT. The new tax law limited state and local taxes to $10,000 and eliminated miscellaneous itemized deductions which were also not allowed for the AMT. The new tax law also increased the AMT exemption amounts for 2018. So far this tax season I have not seen any of my clients paying the AMT which is great news. I hope it continues.

Equitable owner

You can deduct the real estate taxes on a home and the mortgage interest for a home loan even if you are not the legal owner of the home or directly liable for the debt. You have to be considered the equitable owner by the IRS to take the deductions. An equitable owner is one who through facts and circumstances enjoys the economic benefits by living in the house and burdens of ownership such as paying for repairs, taxes and the mortgage.