To save the taxes an $18K capital gain - it is not worth doing.
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How can I create a Qualified Opportunity Fund to benefit when rebuilding my single family property in an Opportunity Zone?
I currently own a single family house, purchased in 3/2018, in my single member LLC located in an OZ. I wish to tear it down and rebuild a new SF house. I have significant equity in it now and would need a construction loan to complete. I do have a stock sale long term capital gain of $18k from 3/2022. I understand that if I create a OZ fund I can't invest in my own property project described above? Is there any way around that?
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You could set up a two-tier QOF structure (i.e., a QOF LLC with a second member that owns an interest in a QOZB LLC with a second member), and invest the $18,000 in the QOF. The QOF would contribute the $18,000 to the QOZB, and the QOZB would also obtain the construction loan. You could then have the QOZB enter into a ground lease with you, on arm's-length terms, to lease the property and construct the new single family home. As you are aware, the QOZB should not acquire the property because it will be a "bad asset," i.e., not qualified opportunity zone business property.
This sounds too small for a ground lease structure, but it sounds like it's possible to pull this off with a ground lease structure. With the numbers you're talking about, though, legal costs will swallow up any benefits from OZ. This all assumes you're holding the SFH for rental and not personal occupancy.
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