CASE STUDY PROVIDING A CREATIVE ... - go.riadatabase.com

PROVIDING A CREATIVE SOLUTION TO MINIMIZE CAPITAL GAINS TAXES

See how Cantor Fitzgerald helped a financial advisor defer a large capital gains tax bill for her client.

CASE STUDY

Copyright © 2020 Cantor Fitzgerald Capital | Case Study: Providing a Creative Solution to Minimize Capital Gains Taxes 2

One of Cantor Fitzgerald’s (“Cantor’s”) primary

objectives is helping financial advisors deliver

maximum value to their clients by offering education

on the creative ways that alternatives can be used

to solve common investor dilemmas.

Qualified Opportunity Funds (“QOFs”) are a prime

example. QOFs offer some substantial potential

benefits for qualified investors, yet many advisors

still don’t offer QOFs because they don’t understand

how the program works and why these investments

can be so valuable to investors.

In this case, we see how Cantor helped an advisor

provide a higher level of value to one of her most

important clients by delivering a solution that none

of the client’s other advisors (including her CPA)

understood. As a result, the advisor brought in held-

away assets under management and gained new

referrals from the client.

Overview


One of the advantages of a QOF investment is that

most short-term or long-term capital gains are eligible

for potential tax deferral when invested within the

legislated time limit. This sets QOFs apart from other

investment vehicles like 1031 exchanges and DSTs

that exclusively offer tax incentives for reinvesting

proceeds from the sale of investment real estate.

In this case, the advisor’s client had recently sold

approximately $1.3 million worth of stock with a

near-zero cost basis, triggering a realized gain equal

to nearly the entire value of the stock.

When a taxpayer realizes a capital gain from the

sale of any asset (other than gains from certain “sin”

businesses) — whether that investment is real estate,

stock, an art collection, a business, or any other

asset — the taxpayer has 180 days in which to invest

those proceeds in a QOF to be eligible for the tax

benefits associated with the Qualified Opportunity

Zone Program (“QOZ Program”).

In this particular case, the 180-day window had

already passed, making these gains ineligible under

the original Opportunity Zone (“OZ”) legislation.

Therefore, her CPA advised her that she would be

forced to pay taxes on the full gain for the tax year

2020.

Problem

3


Fortunately for this investor, she was also a client of a financial advisor who does business

with Cantor Fitzgerald. Cantor had recently notified this advisor of an update to the OZ

legislation delivered in IRS Notice 2020-39.

This notice, released on June 4, 2020, provided a QOF investment deadline extension for

some taxpayers affected by COVID-19.

Specifically, any taxpayer whose 180-day investment window was set to expire between

April 1, 2020, and December 31, 2020, now had at least until the latter date to invest

the capital gain into a QOF and still be eligible for the associated tax benefits. Thus, any

taxpayer who recognized a gain as far back as October 4, 2019, now had at least until

December 31, 2020, to invest that gain in a QOF, even if taxes had already been paid on

that gain.

Since the client in this example had recognized the gain from the sale of her stock in

January 2020, her proceeds were still eligible for potential QOF tax benefits. The advisor

notified the client of her eligibility, and the client subsequently invested the gain in a QOF

with this advisor.

Solution


Many advisors (even those who are generally familiar with the QOZ Program) are unaware of

extensions as a result of IRS Notice 2020-39. This particular advisor was informed because

a Cantor representative had notified her after the information was released.

By providing a creative solution for a client with significant tax implications, the advisor

gained a higher level of trust from one of her wealthiest clients, garnering multiple referrals

and bringing in a sizable sum of new assets under management.

Outcome


About Cantor FitzgeraldCantor Fitzgerald, with over 12,500 employees, is a leading global financial services firm at the

forefront of financial and technological innovation and has been a proven and resilient leader for

over 75 years. Cantor Fitzgerald & Co. is a preeminent investment bank serving more than 5,000

institutional clients around the world, recognized for its strengths in fixed income and equity capital

markets, investment banking, prime brokerage, and commercial real estate. Cantor Fitzgerald is

one of the 24 primary dealers authorized to transact business with the Federal Reserve Bank of

New York.

Through a powerful alignment of vertically integrated affiliates, Cantor Fitzgerald’s real estate

platform offers broad access to critical market data and research, enhanced ability for diligence and

underwriting, and superior deal flow enabling the ability to deliver institutional-quality real estate

investments to investors. Over the past decade, Cantor Fitzgerald has invested more than $2 billion

in its commercial real estate business infrastructure, providing unique insight into every phase of

a real estate transaction. In 2019 alone, Cantor Fitzgerald completed more than $84 billion in real

estate-related transactions.


An investment in real estate carries certain risks including but not limited to a lack of liquidity and potential loss of principal. The information contained herein is not an offer to sell or a solicitation of an offer to buy any securities and is for training and educational purposes only. Such an offer or solicitation can be made only through a confidential private placement memorandum relating to an offering. Cantor Fitzgerald and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting professionals before engaging in any transaction. RISK FACTORSInvestors in QOFs will need to hold their investments for certain time periods in order to receive the full QOZ Program tax benefits. A failure to do so may result in the potential tax benefits to the investor being reduced or eliminated. If a fund fails to meet any of the qualification requirements to be considered a QOF, the anticipated QOZ Program tax benefits may be reduced or eliminated. Furthermore, a fund may fail to qualify as a QOF for non-tax reasons beyond its control, such as financing issues, zoning issues, disputes with co-investors, etc. Distributions to investors in a QOF may result in a taxable gain to such investors. The tax treatment of distributions to holders of interests in a QOF is uncertain, including whether distributions impact the aforementioned QOZ Program tax benefits. A QOF must make investments in Qualified Opportunity Zones, which carries the inherent risk associated with investing in economically depressed areas. Any additional legislation or administrative guidance may reduce or eliminate the expected potential QOZ tax benefits or increase the burden of compliance with the QOZ Program. Investors in a QOF may not be able to take advantage of the QOZ Program’s tax benefits if they do not properly make a deferral election on IRS Form 8949. QOF may encounter significant opposition from local communities, political groups, or unions, which may damage their goodwill and reputation and adversely affect operations. An investment in a QOF is speculative, illiquid, and involves a high degree of risk. This is no guarantee that investors will receive any return.

Cantor Fitzgerald Capital is a division of Cantor Fitzgerald & Co. (member FINRA/SIPC) 110 E. 59th Street, New York, NY 10022

Copyright © 2020 Cantor Fitzgerald


FOR MORE INFORMATION ONCANTOR FITZGERALD OR QUALIFIED OPPORTUNITY ZONES: INVESTORS:

Contact your financial advisor

FINANCIAL PROFESSIONALS:

(855) [email protected]

Copyright © 2020 Cantor Fitzgerald Capital

http://cantor.com

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