Ask The OZ Expert (Fall 2022), With Ashley Tison

In this segment from OZ Pitch Day Fall 2022, Ashley Tison from OZ Pros takes live questions from Opportunity Zone investors on a wide range of topics.

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Episode Highlights

  • Related party rules surrounding sales of OZ properties.
  • Possibilities for passage of the OZ reform legislation.
  • Requirements for making improvements on farmland.
  • Setting up a medical practice (or any operating business) as a QOZB.
  • Issues surrounding trusts as OZ stakeholders.
  • Ideal strategies for capital stacks.
  • Additional questions around trusts, early distributions, and other OZ issues.

Featured On This Episode

Guest: Ashley Tison, OZ Pros

Ashley Tison on the Opportunity Zones Podcast

About The Opportunity Zones Podcast

Hosted by founder Jimmy Atkinson, The Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in opportunity zones.

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Show Transcript

Jimmy: This session is titled “Ask The Opportunity Zone Expert.” So, any questions you have, rapid-fire, hit ’em in the Q&A or in the chat, and we’ll get to as many of them as we can. I know I already have a couple I wanna go back to address to you, Ashley. But Ashley, before we dive in, how are you doing?

Ashley: Fantastic, Jimmy. I like to say that if I were doing any better, I’d be twins, right?

Jimmy: Fantastic. That’s a funny one. So, let’s get on with it now. And by the way, you’re actually joining us from the mainland this time. The last couple of times you were in “Opportunity Zones,” either in the U.S. Virgin Islands or Puerto Rico. So, happy to see you’re at your home office in Charlotte, North Carolina. Joshua has a great question for us.

Ashley: Live from the studio.

Jimmy: Live from the studio. I think he was addressing toward Eric, but you can answer this one, Ashley. When will we know if the new OZ reform legislation passes or not? That’s been a subject of much conversation here so far this morning.

Ashley: Yeah. And so, I think that…I mean, there’s been conversation about that it could go in as a tax extender bill, and get done by the end of the year. I personally think that that’s probably unlikely, and I think that it’ll probably, you know, be one of the first things that the new seated Congress does when they, you know, reconvene in January. So, I think that we’re likely to see it probably in early spring.

Jimmy: Early spring. Okay. I went on the record back in April, and I’m staying with my prediction. I think it gets passed by the lame-duck session of what is going to look like a mixed Congress with Republican control of the House, and Democratic control of the Senate. I think it’s gonna get passed next month in December before the end of the year. But I’m just speculating, I don’t know for sure. I don’t have any inside track on that. Sunny has a question here. Sunny asks, “I am buying a medical practice. It’s in an OZ. If a project is sold before 10 years, can you redeploy without a tax trigger for investors?”

Ashley: Yeah. So, absolutely. So, you know, the magic happens when you hit that 10-year anniversary on your investment at the QOF. And that’s a big distinction that I wanna make for everyone. It doesn’t matter how long you hold the individual assets, it’s how long your investment is in the QOF, and that needs to be in there 10 years. And so, once you get to the 10-year mark, you get to step up in basis to fair market value for any asset that the QOF owns, whether that’s directly or through a QOZB.

And so, prior to that point, and so, there’s a couple of dates here that are significant. Prior to that point, your QOF has the ability to be able to reinvest your basis into another qualified opportunity zone business, or back into the same QOZB that you originally generated the gain from. So, if you were to sell an appreciated asset, and you had $1 million in it, and you sold it for $2 million, then that $2 million is gonna flow up to the QOF, $1 million of it is gonna be taxable as capital gains, but you have 12 months to reinvest the million dollars in bases that you had in the project.

Now, if it’s prior to December 31st, 2026, or you know, September of 2027, because you would’ve gotten that via K-1, then you could reinvest that gain into another qualified opportunity fund, and you’d be able to defer the gain until it comes due. So, if you’re pressing up on that 2026 date, not a whole lot of value in the deferral, but you could cycle it in, so you have more capital to invest into the program. Now, if it’s after that date, right, whatever that date is, whether that’s December 31st, 2026, or is extended to 2028, then you’re gonna pay taxes on it.

We’ve gotten into inside of OZPros Bootcamp. Some conversations about, hey, if you have the money at the QOF level, you can reinvest that into qualified opportunity zone businesses and/or property, and then you could pay the taxes from somewhere else. So, even after 2026, after you sell something, you can reinvest those proceeds and be good to go.

Now, if you get past the 10-year hold, and you sell something, and you want to take the step up in basis to fair market value, then you have to distribute that cash within 60 days. And if you don’t, it’s gonna be deemed a 50% non-qualifying reinvestment. So, we cover all that stuff, and more inside of the Bootcamp. You got further questions about it, join us, and we can set a strategy call. I’d be happy to unpack it. I know we gotta go rapid fire, Jimmy because we gotta…

Jimmy: We gotta keep rolling here. I’m gonna slow things down just a little bit here. You talk too fast, Ashley. But anyways, let’s see. Russell…

Ashley: I’m sorry. When I get all excited I’m like, “Yeah, let’s go, let’s go.” [crosstalk 00:04:45].

Jimmy: Russell’s got a good one. Russell asks, “Can you please address the related party transaction restrictions on QOZB property acquisitions? If a sponsor owns an interest in a property and sells that property to the QOZB, can it own more than 20% carried interest in the QOF?”

Ashley: No, it cannot. And there’s a couple of things. So, number one if the…whoever owns the property is gonna own more than 20%, then it’s gonna disqualify the property transaction. You can also not take the cash from the sale of that and reinvest into the QOF and down into the QOZB, which creates a kind of unfortunate event that you can’t do development deals kind of the traditional way that, you know, they’ve been done since the inception of time, where a landowner contributes the property, and then they get a certain amount of carried interest in the deal. And so, you actually have to buy the property for cash.

Now, if you actually do that, and you don’t own more than 20%, then that’s fine, and you know, you won’t violate the related party rules. But it’s that 20% threshold that you gotta be cognizant about. So, Russell, you’re kind of dialed in on it. You can’t own more than 20%, and that’s 20% combined. So, if Russell and Jimmy were partners in that deal, right, and they own the dirt 50/50, and then they are going to go into the QOF going forward, they would have to water down to 10% each because they couldn’t own more than a combined 20%. And that’s gonna go across all of the partners.

And so, it gets a little bit tricky because usually you’re probably gonna be looking for more than that, and so, you just gotta get creative about how you can invest into the QOF. Now, if you had a capital gain from somewhere else, you could invest that into it and, you know, get your equity that way. But once again, if you want the property to qualify, you still can’t own more than 20% of it. We’ve come up with some solutions for that via ground leases sale and lease back to a third-party ground lease company. And also, you know, just putting the property, if it’s raw land, just tucking it into your 30% bad asset store.

Jimmy: Awesome. Great answer there, Ashley, as usual. Sanjay asks, “Hi, Ashley. We acquired 7,500-acre farmland in South Texas, and my question is, what improvements do we have to make on the farmland to qualify for the OZ benefit? And can we sell a portion of the property to pay off the note?”

Ashley: All right. First thing, Sanjay, my email is [email protected]. Send me the time and the date that you want me to come down and shoot your coal deer down there on your 7,500 acres because I know you guys are hunting deer in south Texas, and that’s my favorite thing to do. Or I’ll bring my duck dog Max, and we’ll come on ducks. But the answer is you just have to do something different to it.

So, we actually did this for a large tract of land in South Carolina where a gentleman bought it, and they’re making a wetlands mitigation bank out of it. And in the meantime, they put it into a commercial hunting operation. And so, they hired some local people. They’re also doing some farming stuff to provide food for the local population. And so, the key thing on agricultural land is you just have to do something. So, if it’s row crops now, and you want to turn it into timber, that’s sufficient. If it’s timber, you want to turn it into row crops, that’s sufficient. If it’s just raw land and you want to turn it into a hunting operation, that’ll work. You just have to do something with it and put it in service inside of those 30 months.

Jimmy: Great. Okay. Question here from…I messed up this question earlier from Srinivas, I combined it with another question accidentally. But Srinivas asks, “I am buying a medical practice. It’s in an OZ. Will it qualify as a qualified opportunity zone business?”

Ashley: A medical practice?

Jimmy: Medical practice.

Ashley: Yeah. I mean, so there’s five…there’s four tests for basically an operating business. You have to pay either 50% of your aggregate payroll to people who are working in the zone, or 50% of your total hours need to be paid to people working in the zone, or you can have your property and your…like, your personal property and your people home run to the zone, which means that they’re actively in day-to-day managed on a day-to-day basis by somebody who’s inside of the opportunity zone.

So, inside of a medical practice, if that’s your only medical practice, then absolutely you could treat that as a QOZB. Now, just be wary that when you’re buying something, a business that’s already inside of a QOZB, you have this new requirement for any tangible personal property. So, like, the exam tables, and all that kind of stuff, if they’ve been depreciated in the zone, that’s gonna go into your bad asset store. And so, you just need to be prepared to buy 2 1/2 times whatever the value of the tangible personal property is.

Jimmy: Terrific.

Ashley: Now, if you were buying something from outside of the zone and moving it in, that’s gonna count as new, and that will go into your 70% good asset store.

Jimmy: All right, excellent. Well, we got… Let’s see. We’ve got about 10 more minutes or so here. We’ve got a lot more questions, so thank you. By the way, if we don’t get to your question, Ashley’s available via email. You can reach him at [email protected]. I’ve linked that in the chat. Paul asks, “Hey, Ashley. How will QOF investors get their heads around the valuation of QOF investors to determine taxation in tax year 2026, lower of basis in deferred capital gain versus fair market value? We think that QOF managers will undertake the valuation process of QOF investment interest that taxpayers can rely on.” So, maybe you can kind of spend a little bit of time on background on that. Here we go.

Ashley: So, yeah. So, Paul’s talking about this whole notion, and this is one of the really cool things inside of The Opportunity Zone Program, is that when you go to pay the taxes in 2027, you know, become due on December 31st, 2026, it’s either going to be the lower of your original gain or the value of your QOF investment at the time. And so, unfortunately, the treasury and the IRS did not give us a whole lot of guidelines about how you have to value that. Is it based upon depreciation? Is it market value? What’s a factor inside of that? So, I actually think that there’s gonna be a whole cottage industry that’s gonna spring up to be able to value QOF investments as of December 31st, 2026 so that that way people aren’t paying more taxes than they should.

So, great question, Paul. Go ahead, man. You need to run with that appraisal company, and come up with a solution relative to how you factor in, and how you calculate these things. But thanks for being here today, and thanks for running the compliance zone that happens inside of the OZworks Group every first Monday of the month. And Paul walks through stuff just like that in the compliance zone. So, if you’re a member of OZworks Group, you can join that as part of your membership. And we go through stuff just like that. It’s kind of cool.

Jimmy: Yeah. And we’ve got a special offer today for OZ Pitch Day attendees. You can find that at…more information on that at I’ve linked that in the chat as well. Next question here from Brian. Brian’s got a question about trusts for you, Ashley. If a trust holding a qualifying investment in a QOF terminates after 2026, but before the qualifying investment has been held for 10 years, do the trust beneficiaries step into the shoes of the trust and retain the status as a qualifying investment, and therefore can beneficiaries make the election to step up basis to fair market value?

Ashley: So, I think that that’s gonna depend on whether the trust is revocable or irrevocable. And I think that if it’s revocable and you… So, inside of a revocable trust, and the beneficiaries of that are who you could normally convey your interest in a QOF to, then I think that that’s absolutely fine. If it is an irrevocable trust, that’s an entity, and I think that a distribution to the beneficiaries of it would be considered an inclusion event. And so, I think that that’s the key differentiator on that. Once again, kind of happy to kind of maybe unpack that more because we’d have to jump into the specifics of that situation. But I think that that’s the general guideline, is revocable. I think you’re okay. Irrevocable, I think that that would present an issue.

Jimmy: No, perfect. And so, we checked off revocable, irrevocable, and inclusion event off of the bingo card for this session. If you guys have the bingo card, you can check those off. We’re getting close now. Greg.

Ashley: I wish I would’ve seen it, man. You know, so… And, you know, there’s gotta be, you know, a beautiful baby named Opportunity Zones on there too, right?

Jimmy: Oh yeah. That one got checked off early on. So, Gregory asks a question about a deal that he’s putting together. He says, “We are planning a 200-room hotel and market at a waterfront setting in Pasco, Washington, ground-up construction, $65 million. What is the mix of debt and equity for such an OZ fund set up by the developer?” Property appreciation is expected to be exceptional. So, I think the question is what’s a good debt-to-equity mix? What do you see as being common for something like that? $65 million, 200-room hotel, ground-up construction.

Ashley: So, I think that that is gonna be driven by how much equity you can raise. If you’ve got the ability to raise it all in equity, I would say do it, right? Because you get to give everybody that’s your investor the benefit of being able to defer those taxes, and then get to step up in basis to fair market value on the back end. And you can distribute out almost all of their…well, you could distribute out more than all their money right inside of two years, right? As they were just talking about in the last session. And so, I would say raise all of the equity that you can.

Now, if, you know, if that’s a problem, right, or if it’s going to… And it shouldn’t really have that big of an impact relative to kind of your preferred return because if you get it out to them soon enough, you should be able to stop the bleed on the pref, right? Because you’re gonna end up paying a preferred return to ’em, and so, you wanna make sure that you try to get their money back as soon as possible.

Now, that being said, is if you can come up with really good debt terms, right? So, you ought to check with the USDA lender because if you’re in rural Washington, more than likely, and you’re building a hotel, you could probably get USDA construction financing, which is non-recourse, it’s on a 28-year amortization, and the interest rates are…they’re actually fairly decent. And so, I would look into some other options like that. I would also really look at PACE financing. So, property assessed clean energy financing, look at that as it relates to your capital stack because that could be some really, you know, beneficial debt. And I really like some of their terms.

Jimmy: So, I just have one more thought to add. I did a podcast episode a couple months back with Louis Dubin, founder and managing partner at Redbrick LMD, and the topic of the episode was all about how to use leverage and OZ deals. And he had some really interesting philosophies about that. You can listen to that episode on my website. I just posted a link to it in the chat.

But the bottom line is he likes to be very conservative and use about 35% to 40% debt in…with new construction. Some funds like going a little bit higher, maybe 50, and even more. But, you know, with interest rates rising the way they are, the cost of debt becoming much more expensive, you’re seeing more and more funds raise a larger percentage of their capital stack as equity, and relying less and less on debt. There’s no right or wrong answer there, I would say.

But take a look at that episode. Ashley, one more thought there from you?

Ashley: Yeah. I think that it makes sense to your point, right? If you can…you know, leverage is the biggest risk in real estate development as a whole, right? Because equity, if you do it all in equity, all your risk is time. There’s a time value of money, right? But with debt, you could…you know, you run the risk of potentially losing the asset. So, if you have the ability to raise it all in equity, go ahead and get the thing built, get it stabilized, and then bring in debt, right, at a reasonable amount, and give people their money back, I think that that’s obvious…I think that, you know, just personally, I think that that would be the way to go.

Jimmy: Yep. No, and that is the way that some folks do choose to operate, just eliminate that debt risk entirely if you can raise it all in equity. We’ve got just about three minutes left until we have to move on to our next segment, Ashley. And I know that breakout session with Eric is winding down right now. But Shiva asks, “Gains invested in opportunity zone funds will be taxed the earlier of A, funds withdrawal, or B, 2026? I wanna withdraw the fund in ’22 and have taxable gains in ’22 as we have losses this year. Is that okay?”

Ashley: Absolutely. We had somebody in the Bootcamp do exactly that. They had, you know, trading losses and they’re like, “Listen, I want to take some of the gain now, right, so that that way I can manage what my taxes are gonna be in 2026, I wanna distribute some of that gain right now.” And so, they just…they literally just distributed some of the cash to themselves, tripped an inclusion event for that amount. Now, when you do that, you need to make sure that you check the box on your 8996, you attach a schedule to it, and then you report that income on your 8949, and then also put it on your 8997. We’ve got videos about all of that stuff, you know, on your YouTube channel, Jimmy, and we’d be happy to unpack it in detail as well. But yeah, you can absolutely do that.

Jimmy: Okay. Time for one or two more questions. Alva asks, “What is the business structure model for a trust seeking to invest into an OZ fund and/or business models for OZ fund using a trust?”

Ashley: Yeah. So, I mean, typically, you’re gonna see that as irrevocable trust because if it’s an irrevocable trust, if you try to transfer it into the irrevocable trust after the gain event has happened, it’s gonna trip an inclusion event. So, if you want to use an irrevocable trust, make sure that that trust had the gain, and then you’ll be good to go. I’m gonna cycle through a couple more of these, Jimmy.

Jimmy: Yeah. Go for it. And then…

Ashley: Peter.

Jimmy: We have about 60 more seconds. So, quickly.

Ashley: Peter said, “Do you mean the final value of the improved property for the 20%?” Nope. It’s 20% of the ownership interest inside of the fund or control of it, Peter. And then Shrinivas asks, “Will I have tax benefits doing the medical practice in an opportunity zone?” Absolutely. Because it could be a business or it could be property. And so, the increase in value of your medical practice over the next 10 years will come back to you tax-free after a 10-year sale.

Jimmy: But only if there’s a gain invested into the medical practice. Isn’t that right?

Ashley: That’s… Well, yeah. So, you have to have a QOF, and you have to start your…and you have to have your equity held by your QOF in order to get that benefit. But yes, correct.

Jimmy: Right, right. Well, Ashley, we have run out of time, but… And I know we’ve got…we’ve probably only answered about half of the questions. So, if people have questions for you that they weren’t able to get answered, by the way, I just scanned that QR code, it works. Like, I can’t believe it. Took me right to So, feel free to scan that QR code. But Ashley, if anybody else wants to learn anything more about you or OZPros, tell them what to do, tell ’em where you want ’em to go.

Ashley: So, we’ve got three ways to interact. We’ve got strategy calls, we’ve got the OZPros Compliance Bootcamp, and we’ve got OZworks Group. And all three of those are inside of our landing page at Or you can take a picture of the little QR code on your screen right now, and that’ll take you straight to that site. And I can’t wait to get on some strategy calls, can’t wait to unpack some of this stuff inside of the bootcamp, and make sure we get these questions answered.