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How can I refinance proceeds from a Qualified Opportunity Fund and leverage distributions?
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This is permitted.
It is possible to typically refinance following stabilization. At that point, depending on the debt terms and capital structure, it is possible to leverage distributions.
While that is possible, you need to be very cautious for any leveraged distributions in the first 24 months, even if you did not contribute appreciated property. The 2019 OZ regs provide guidelines.
You can really only take debt-financed distributions if the fund is yours entirely. So if you invested in someone else's fund, you will likely not be able to control this at all. However, it is entirely your self-created fund (entity), then the same rules apply to the entity that would apply to that entity were it not a Qualified Opportunity Fund. For example, if it's an LLC or partnership, and there is real estate in that entity that has equity, you can finance the property to access some of that equity in the form of cash and distribute it to the partners (yourself included). You will always have to be mindful that you have tax basis so you can avoid having taxable distributions in excess of basis, but you should be fine in a typical real estate transaction since you would generally get basis for your share of the partnership debt. Please consult a personal tax advisor to evaluate your specific circumstances regards to basis. Also, please note that S corporations would generally not be the right entity for this since you would not get basis for the debt and distributions would likely be taxable.
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