OZs And Other Tax Mitigation Strategies, With Ashley Tison

A popular strategy for deferring capital gains tax is the Opportunity Zone investment. However, timing and strategy are vital when it comes to qualifying for the OZ deferral with key considerations unique to this investment space.

Ashley Tison is founder and president of OZPros, a national leader in helping people with capital gains harness the generational wealth creation opportunity of Opportunity Zones.

Click the play button above to listen to our conversation.

Episode Highlights

  • Qualified Opportunity Zones as a hedge against market volatility and inflation.
  • Important timing considerations for QOF and QOF investors
  • Key benefits of Opportunity Zone investment and development.
  • Solar and other types of tax mitigation strategies.
  • The impact of alternative investment projects have on profits, people, and communities.

Featured On This Episode

Industry Spotlight: OZPros

OZPros helps commercial real estate companies create their own OZ Funds, and advises investors with significant capital gains tax exposure on how to make investments that reduce their tax burden. 

Learn More About OZPros

About The Alternative Investment Podcast

The Alternative Investment Podcast covers new trends in the alternate investment landscape. Hosts Jimmy Atkinson and Andy Hagans discuss diversification opportunities in the alts universe, including direct investments, DSTs, opportunity zones, private equity and more.

Show Transcript

Jimmy: Welcome to The Alternative Investment podcast, I’m your host, Jimmy Atkinson.

Andy: And I’m your co-host, Andy Hagans.

Jimmy: Joining us today on the podcast is Ashley Tison. Ashley is an attorney, real estate investing veteran, and tax mitigation specialist. And he is also partners with me in OZ Pros, an advisory firm for Opportunity Zone stakeholders and investors. Ashley joins us today from Charlotte, North Carolina. Ashley, how are you doing, and welcome to the show?

Ashley: Thanks, Jimmy. As always, it’s a pleasure to be on and it’s a pleasure to be a guest with you and Andy, and really appreciate what you do for not only in Opportunity Zone space but now the alternative investment space. So this is fantastic. Thanks for having me.

Jimmy: Absolutely, Ashley. Happy to have you here. As always, great to talk to you. So you are very passionate about Opportunity Zones and we’ve been partners in OZ Pros for a few years now. And I want you to characterize or convey to our listening audience, what it is about Opportunity Zones you love so much. I mean, you’ve even been known to say that if you’re looking at projects and if one project isn’t even inside an Opportunity Zone, you won’t even bother looking at it. Why is that exactly?

Ashley: Yeah. So it’s funny in 2018, I was at a CLE because I was actually doing consulting for business owners that wanted to mitigate taxes. And I had a firm that did that, and so I was learning about the Tax Cut and Jobs Act. And in the middle of that presentation, it was after lunch and everybody was kind of nodding off, going to sleep. And the gentleman started talking about Opportunity Zones. He was like, well buried in the 1,700 pages of legislation there was three pages that talked about these Opportunity Zones. And I kind of perked up and after he described them, I was like, wow. And so I ran him down in the hall after he was done speaking and I was like, “Excuse me, that sounded like 1031 and private equity got married.” And he’s like, “Oh yeah, and they had a beautiful baby called Opportunity Zones.”

And if he would’ve used that line up there, maybe he would’ve woken up half the crowd who had, you know, dozed off to sleep. But as it was, I ran back inside and I was like, you know, I think that this is gonna be the next thing. And so I took down a bunch of domain names. My admin actually ended up changing my GoDaddy password later on that day because I bought so many domain names, but I launched a website. And before we knew it, we had tons of inbound traffic on it because other people out there saw the same thing that I did, which is if you can take out capital gains taxes on the back end of a transaction, it is real estate and operating business investor nirvana. And it’s unbelievable what that does on a side-by-side comparison of deals, even the same deal. If you put it in an Opportunity Zone, it is unbelievably better than a non-Opportunity Zone deal. And so, as a result, I was like, all right, I’m all in on Opportunity Zones. And to that end, it doesn’t really make sense for me to waste my time on non-Opportunity Zone deals. As a matter of fact, I even actually sold my mobile home park that was not in an Opportunity Zone so that that way I could invest that cash into deals that we were doing in Opportunity Zones. That’s how strongly I felt about it.

Jimmy: That’s great, Ashley. And for those listeners out there who aren’t clear on Opportunity Zones, I don’t think we need to rehash on this episode what Opportunity Zones are, but you should check out episode number three of The Alternative Investment podcast. We have a great 101 intro to Opportunity Zones there. We thoroughly go over all the benefits of the program in 25 minutes. So it’s a great episode to check out if you wanna learn more about OZs.

Ashley: If you gave an overview in 25 minutes, I’m very impressed. You guys were moving along. That’s fantastic.

Jimmy: We packed in a lot of content into those 25 minutes. Yep.

Ashley: Well done.

Andy: So, Ashley, I wanted to talk a little bit about what you do at OZ Pros. You’re one of the foremost connectors and strategists and consultants in the entire Opportunity Zone world. I know you do strategy calls with investors, with sponsors, with bankers, and I kind of wanted a walkthrough like a typical listener of The Alternative Investment podcast, or maybe just an individual, let’s say, who is realizing or just realized like a large capital gain. Let’s say maybe they started a software business and exited that. And so they’re sitting on a $10 or $15 million capital gain in 2021, right? So they might come to you for advice on how do I mitigate my tax liability on my capital gain, you know, with investment strategy and all that sort of thing? And from what I understand, you know, a lot of people with these large capital gains are setting up their own self-directed qualified opportunity funds like a captive fund, but there’s also plenty of people who just wanna, you know, invest it with a sponsor, like, for instance, one of the sponsors that we have at OZ Pitch Day and be more passive.

So could you walk us through if we have an ultra-high net worth client who’s sitting on a large capital gain, what are the pros and cons of setting up that captive self-directed fund versus, you know, just investing in third-party QOFs?

Ashley: That’s a great question, Andy. And what I typically do when I have that conversation with those folks is I tell them look at all of the deals that are out there on your pitch day and look at all the other retail opportunity funds that are available. And if there’s 1 that kind of catches your eye or 2 or 10 or however many that you’re interested in investing in, go ahead and make those investments directly into those qualified opportunity funds because it’s just gonna be easier and cleaner if you know that that’s kind of the direction that you’re leaning. You like the asset class, you like the sponsor, you like the return structure, and you want to be kind of more of a passive investor, go ahead and put your money into those. But then there’s a lot of people that they either don’t have time or they don’t have the energy to really do a deep dive into the specific funds prior to when their 180 days runs.

So what we do is we use the captive QOF, self-directed captive QOF as the quintessential hedge for them because it allows us to stop the 180-day clock to go ahead and defer the taxes on that. So they’re not gonna pay taxes the next year, but it’s gonna defer paying those taxes until 2027. And then it allows us time to do a lot of different stuff. So the first thing that we can do is we can look to see if there might be deals that they wanna do directly, and that they wanna do on their own, and they wanna actually be the manager of those deals. The second deal is that it allows us to, even if they don’t necessarily or they can’t find a deal, they don’t wanna do a deal or they can’t find a deal that they wanna do themselves, it allows us time to be able to figure that out.

And if they can’t find a deal, it allows us to put them in front of other Qualified Opportunity Zone businesses that will accommodate investment directly from another QOF, which there’s a multitude of those out there. And so it becomes a time hedge and it also becomes an energy hedge because it buys us time for them to be able to go about their due diligence, to go about their search to find either a direct investment QOZB that they’re gonna do themselves, or a direct investment QOZB that they’re gonna do with somebody else, or if they ultimately decide that they really like one of the retail QOFs that are out there, they wanna go into caliber. They wanna go into origin that won’t accommodate a direct investment into the QOZB. It allows us to be able to disperse that money back to them, and then get another 180 days that they can then make an investment directly into those retail type deals.

So because of that and then because of the flexibility of what we can do with the cash while it’s sitting in the QOF and/or inside of their QOZB, that’s why we’ve gotten a lot of traction on those deals. And so we set them up and, you know, we do them…I don’t know what the count is, but we do a lot of them because I think that we’re over 500 entities now because it really resonates with people that they have the ability to be able to control it while they go and do their due diligence and figure out what their investment strategy is gonna be.

Andy: I love that concept that you mentioned of it being a time hedge and just like a quintessential hedge. And I think one interesting thing, and we talked about this in Episode 3, Jimmy and I did you have those three benefits, the tax benefits of the Opportunity Zones program, and the first one is that tax deferral. And then the second one is that 10% reduction in the initial capital gains owed. But that deferral and taking advantage of that, I view that as reduction as well. I mean, if inflation is gonna sustain at 4% or 5%, a five-year deferral is, shoot, that’s like a 25% reduction in 2021 dollars. And then you stack on the additional 10% reduction. You know, if you lock that in by December 31st of this year, so even just that deferral is worth a ton. So I love that you have that strategy and you help people with that because it’s just locking in that benefit of the program without having to like rush and find that project, you know, when you’re under gun of that 180-day deadline. And so I think one of the reasons you and I get along so well, Ashley, is because we both love tax mitigation strategies. So I wanna talk a little bit about…

Ashley: Well, hold that… So Andy, let’s talk about that 180 days real fast too before we move on to the next topic because invariably, people will set a strategy, call it day 179. So they’ll call and they’ll be like, “Hey, my 180-day is tomorrow. How quickly can you get a QOF set up?” And I’m like, “Well, we could get a QOF set up for you today, but it’s gonna take you a while to get a bank account set up. And you actually have to put the money into the QOF in order to have account.” And so after about three or four were of those calls back two years ago when we had the 2019 deadline and people were calling me, you know, as we were coming into that 2019 deadline, when the 5% went away, we decided that we were gonna go ahead and set up shelf funds.

One of the other reasons why we did that is because invariably at the end of the year, the IRS shuts own the service that gives you EIN numbers. And so you couldn’t get an entity set up to get a bank account even if you wanted to. And so we have a number of these shelf funds that are set up with not only entities that have an EIN, but they also actually have bank accounts and they’re just ready to go. And they’ve got some interesting names. I think we’ve got like Sunshine and Thunder QOF, kind of the random names that are placeholders and then, you know, we ultimately change them for the people if they want to afterwards, but we do have those available. So if somebody’s either coming up on their 180 days, or as we go into December if they’re coming up on that December 31st deadline, or they can’t get an EIN from the IRS, we put them into a shelf fund.

Andy: Got it. So then maybe later someone asks me, Andy, why is the name of your fund, Andy Likes to Procrastinate, LLC? I’m like, “Oh, that’s the only one Ashley had available.”

Ashley: That’s exactly right. Yeah. So don’t be the last one because you’re gonna get stuck with Sunshine QOF.

Jimmy: That’s a perfect transition to my next question for you then. I know you wanna talk about solar and other types of tax mitigation strategies. What other types of strategies do you really like out there?

Ashley: Well, so the fantastic thing about solar and, you know, we work with a couple of groups that do this, and they specifically do it to where they offer this as an investment strategy, but they actually install solar on the roofs of churches in Opportunity Zones. And it becomes kind of a win-win impact-wise for everybody because the churches get reduced, you know, power costs, and the investors are able to then go buy those solar panels through their QOF or through their QOZB and they’re able to take advantage of the accelerated depreciation on them. They’re able to take advantage of the ITC, the investment tax credit, which is gonna go back up to 30%. And then they’re also able to take advantage of the decreased value that’s gonna happen when their fund turns five years old.

So in 2026 when they go to pay their taxes, you either pay taxes on your original gain or the value of your fund at the time. And if you’ve made an investment into solar, the value of that investment is going to be significantly less five years from now just because of the depreciation. So that becomes a really powerful triple whammy, if you will, because you’re able to take advantage, not only of the deferral, you’re making the investment into the solar panels with deferred dollars and then you’re able to get the depreciation and the investment tax credit off of those. And so effectively, you know, in the way that this is structured, a lot of times it works out to where almost a dollar for dollar reduction. So because they couple it in with seller financing, they’re able to increase the outside basis to be able to allocate that depreciation up to the investor and so much so that you’re almost able to get dollar for dollar on your tax reduction.

So I really like that one. I also really like just the general concept of depreciation that’s available inside of either a real estate deal or a business deal where there’s rapidly depreciating assets available. So in a business deal, if there’s any kind of personal property that you’re buying, you’re able to 179 those assets and to take bonus depreciation on those and to pass those through. And if you’re in a real estate deal, you’re able to do a cost segregation study so that that way you can get accelerated depreciation on the different components of your real estate deal, like the cabinets and the HVAC and that kind of thing that depreciates faster than the typical 39-year land depreciation schedule. So I really like the solar deal. I like that deal. And I’ve also seen some really cool tax incentive programs that are available that are out there that are outside of kind of the traditional Opportunity Zones, but if they’ve fallen inside of the Opportunity Zone, you can layer those tax incentives.

So whether that’s historic tax credits, or low-income housing tax credits, or I’ve seen a deal down in Puerto Rico where there’s a hospitality fund that’s doing different hotel deals down there. And because of the dearth of hospitality assets in Puerto Rico and how much they need those to be built, particularly after Hurricane Maria, they actually offer up to a 40% tax credit on your acquisition cost, your redevelopment costs, and your first-year operating costs as an incentive to the investors that come in. And so if you’re able to take your…basically get 40% of your deal back over the first three years of a project, it’s unbelievable what that does to the internal rate of return and to the juice on those deals.

Jimmy: Yeah. That’s just free money you’re getting from the government there, right?

Ashley: It’s really powerful. So we’ve seen that down in Puerto Rico with the hospitality assets and there’s different states that have really cool tax credit programs that are out there that are either specifically geared for Opportunity Zone deals. So like Ohio has a 10% tax credit for any investment that goes into a QOZB. And so you’re getting an immediate 10% back on your deal, which really helps from the cash flow standpoint because typically you got development and that kind of thing that happens in the first couple of years. And so when you’re able to pull either an actual dollar for dollar credit that you can utilize, or that you can sell, it becomes a really powerful deal to make the deal really attractive. So Ohio’s got the 10%, South Carolina has this Angel Investor Tax Credit where you can get 35% of your investment back up to $100,000 for startup businesses down there. And we actually saw somebody take advantage of that with a tiny home manufacturer.

And then they were also able to stack on that $2,000 per unit multifamily housing credit that’s available. So between all of those, they’re able to stack those up to even further benefit the Opportunity Zone play. So it’s really cool when you see how all of those can be brought to bear to really make an investment into these areas. That’s obviously gonna have some great impact, you know, really have positive impact for the investors too.

Jimmy: So talk about some of the impact that these alternative investment strategies, and particularly Opportunity Zone projects have and why you’re passionate about it?

Ashley: Anybody can make money, and there’s a lot of folks out there that do. But I think that it’s really, really, really cool when you can make money and you can do good for people. We call it doing well while doing good. And I think that the Opportunity Zone legislation as a whole has kind of become this rallying point for folks that want to do exactly that, they wanna do well while they’re doing good for their fellow man. So I regularly talk to people that are doing exactly that, to talk to a guy that’s got a project down in Alabama where he’s putting together a development, but instead of it being just kind of a retail development that he’s gonna sell off, he’s actually putting together a community for autistic people to be able to get the resources that they need where they can live in a place that’s on the lake in an Opportunity Zone.

It’s stuff like that, that I get to talk to people about on a regular basis. And there’s the impact piece of that that they are then able to extend to their investors. And they’re also able to then layer in the tax incentives, both from the Opportunity Zone program and then from these other types of things in order to really, really make that…to make it sing from a return standpoint. But one of the kind of coolest things that I’ve seen people do is to layer in a charitable component inside of what they’re doing within their Opportunity Zone strategies. And so once again, you know, Andy kind of referred back, and this is once again, the quintessential hedge of how you can buy yourself time to be able to figure out what it is that you wanna do because by putting your money into an Opportunity Zone deal, we’ve got five years before you’ve gotta pay the taxes on that.

And prior to that, we can do all kinds of different alternative investments, we can do charitable gifting strategies, and we can do other things that are going to help you reduce that tax bill when it comes time to pay it in 2027. And so it’s really cool when we’re able to add in the charitable component to that where we’re able to show people how they can not only save money and taxes, but they can also do so by giving it away and by being a part of something that they’re passionate about. And that’s what I get excited about is helping people, number one, figure out what that is. Number two, figure out a strategy for it. But then number three, to feel what it feels like to do well by doing good and to actually gain so much by giving it away. That’s really cool.

Jimmy: Well said, Ashley. Well said. Well, I do wanna thank you for joining us today. I appreciate all of your insights. If there’s a high net worth investor out there who’s interested in learning more about some of these tax mitigation strategies that you brought up, or especially if they’re interested in Opportunity Zone investing and creating some impact in their local communities or elsewhere around the United States, where can they go to learn more about you and OZ Pros?

Ashley: Yeah. So ozpros.com is the best place. And we’ve got information that’s on the website. We’ve got a number of different resources on there. We’ve actually got our Opportunity Zone cheat sheet, and it’s a one-pager that’s got basically all of the rules that you need to know about Opportunity Zones on a single page. And we’d love to get that in the hands of everybody out there and would love to get on a strategy call and see if we can help them out.

Jimmy: Yeah. See, I love that. I packed in OZ 101 in a 25-minute podcast, but you did it on one sheet of paper. So that’s more impressive, possibly. Awesome, Ashley. Well, also for our listeners out there today, we will as always have show notes available AltsDb website. You can find those show notes at altsdb.com/podcast. And there you’ll find links to all of the resources that we discussed with our guest today, Ashley Tison. Ashley, thanks for joining us. Appreciate it.

Ashley: Jimmy, once again, it’s always a pleasure. Thanks for having me on the show, thanks for what you do, and keep on doing your thing.

Jimmy: We’ll do. Thanks, Ashley.

Michael Johnston
Michael Johnston

Michael Johnson is co-founder and lead analyst at AltsDb, with over a decade of experience in financial research. He resides in Oregon.