Curious about Qualified Opportunity Zone (“QOZ”) investments? Check out this presentation delivered by Steve Ghirardo and Alaine Bry Raven from First American. The presentation deck will detail: - 3 Tiers of QOZ Tax Benefits - Basic Qualifying Requirements of a QOZ - QOZ’s vs. 1031 Exchanges, the differences - QOZ’s with 1031 Exchanges – creative deal structuring

1. ©2019 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF
©2019 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF
First American Exchange is a Qualified Intermediary and is precluded from giving tax or legal advice. You must consult with your tax or legal advisor
about your specific circumstances. First American Exchange Company, LLC makes no express or implied warranty respecting the information presented
and assumes no responsibility for errors or omissions. First American, the eagle logo, and First American Exchange Company are registered trademarks
or trademarks of First American Financial Corporation and/or its affiliates.
The following presentation is for informational purposes only and is not and may not be construed as legal advice. No third party entity may rely upon
anything contained herein when making legal and/or other determinations regarding its practices, and such third party should consult with an attorney
prior to embarking upon any specific course of action.
Opportunity Zones
vs
the 1031 Exchange
a Tax Practitioner’s Perspective

2. ©2019 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF
Presented by:
Steve Ghirardo CPA ,MBA, MS, Real Estate Broker
GHIRARDO CPA
415.599.4901
steve@ghirardocpa.com
Alaine Bry Raven Vice President / Business Development Manager
First American Exchange Company
415.407.7862
ARaven@firstam.com

3. ©2019 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF
QOZ Basics - Purpose and Scope
o Created as part of the Tax Cuts and Jobs Act of Dec 2017
• Now 2 sets of Prop Regs issued (Oct 2018 and April 2019) for guidance
o To incentivize economic development, job creation and new business
formation in low-income communities nationwide.
o More than 8700 designated areas (Qualified Opportunity Zones “QOZ”)
• 879 QOZ’s in California alone - 57 counties
• www.cdfifund.gov/Pages/Opportunity-Zones.aspx
o Treasury Secretary estimates this QOZ legislation could drive more than
$100B in new capital to these areas.
“A domestic emerging market” according to one senator.

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The 3 Tiers of Tax Benefits Offered – Provide $1M gain example
1. Deferral of gain recognition until Dec 2026
o Note that although tax deferred for years, it is also “locked in” and the
tax must be paid by April 2027
• Even though the funds were used to invest into the QOZ to begin
with.
• Therefore Taxpayer needs other liquidity available to fund this
deferred tax liability.
o Note also this is an “IRD” asset in the deceased’s estate
• Therefore no basis step up to FMV unlike investment real estate and
most other assets not owned via Retirement Plans or IRAs.

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2. Basis increase (gain reduction) if hold for 5 years min
(10%) and 7 years (another 5%) as of Dec 2026
o Note that to obtain full benefit of 15% gain reduction must invest in
QOZ by 12/31/19.
3. 100% exclusion from tax from any “real” gains made in
the QOZ investment itself – if held > 10 years.
o No limit to this gain exclusion.

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Basic Requirements to Qualify
1. Capital Gains only are eligible to invest and obtain the
three potential tax benefits
2. Must Invest Within 180 days of sale giving rise to the
Capital Gain
o Special rules (more flexible) as between Partnerships and its
Partners
• Partnership can make its own election
• If it doesn’t then Partners can elect personally and choose
their start point for 180 days timer from either:
 Date of Partnership’s Sale of asset
or
 End of taxable year (generally 12/31)

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3. Into a Qualified OZ Fund (“QOF”)
o QOZ geographic area
o Must be via Partnership, LLC or Corporation interest
o Must hold > = 90% of its assets in “QOZ Property”
• Measured every 6 months
4. QOZ Property can be almost any type of business
o Including real estate investments
o Other businesses except for the “sinful or luxury” excluded
o QOZ stock or QOZ Partnership interest
• Preferred stock allowed
• Partnership special allocations are allowed

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QOZ Property Must be:
Purchased by QOF from an unrelated party (no more than 20%
ownership overlap) after 2017 and, either,
1. Original Use of property begins with QOF or
2. The QOF must “Substantially Improve” the property.
o During any 30-month period after acquisition, QOF must
spend > 100% of building cost in making improvements to the
property.
o Building Cost does not include the cost of the land.
*Therefore the allocation of original purchase between land and
structure is critically important.
3. QOZ business must have > =70% of the tangible property, owned
or leased as QOZ property

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Goals
1031 Exchange –
o Deferral of capital gain tax – rolling over gains form the disposition
of investment real estate to new investment real estate.
o Way to trade up, expand your business, diversify investment
(location, type, etc.)

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Mechanics
1031 Exchange –
o Only for capital Gains tied to real property sales
o Like kind: Purchase interest in real estate
o Timelines – 45 /180 days
o All proceeds (and debt) have to be reinvested for 100% deferral
o 100% deferral once holding period established

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1031 Exchange Opportunity Zone Program
Eligible asset classes Only real property held for investment or
business purposes
Any
How much needs to be invested All proceeds for full tax deferral Only capital gains, in any amount
Investment deadline 180 days 180 days
Where can you invest Anywhere in the U.S. Only in QOZ’s through a QOF
Is an intermediary required Yes No
Tax benefits • Tax can be deferred indefinitely through
perpetual exchanges but capital gains
fully taxable upon the sale of the final
replacement property
• Upon death of exchangor, heirs
received stepped up basis to the
property’s market value
• Capital gains deferred until December
31, 2026
• OZF investments receive 10% increase
in basis after 5 years and 15% after 7
years
• Zero capital gains tax on gains from
QOF investment after 10 years
OZ vs 1031

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“Maybe”
Strict rules about when the qualified intermediary can release proceeds
back to the client once a 1031 starts.
Structure 1: Decide within 45 days. Start a 1031 (docs in place prior to
the sale and funds go to QI). Use 45 day ID period to decide whether to
do 1031 or invest in OZ Fund. If no ID within 45 days, funds returned to
investor and investor can direct the money to the Fund.
Structure 2: Use some money for 1031, if boot returned prior to day
181, investor can place boot in Fund.
Structure 3: Use non-1031 funds to invest in OZ Fund. If can’t complete
the 1031, funds already invested and can defer tax until 2026.
Can you combine 1031 and OZ?

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QOZ as a backup to a failed 1031?
When does the 180 days to reinvest begin?
Not certain – to be safe better to assume the close of Relinquished
Property rather than from date that the exchange fails
• Therefore unless Taxpayer has separate funds to invest (not have
to use the 1031 exchange funds) should “fail” the 1031 at day 45
by failing to designate properties –
Thereby getting the 1031 funds back and having 135 days left to reinvest.

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Combine Partially Taxable 1031 exchange with a QOZ
Investment for the gain (“boot”) portion?
• Defer indefinitely most of the real estate (1031) gain
• Take cash boot out and use it to invest into a QOZ – to achieve
the 7-year gain deferral, 15% gain reduction, and get tax free gain
on the QOZ investment if > 10 years hold

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Can this QOZ investment be in a QOZ Business
involving the 1031 replacement property itself?
• Not for the target real estate itself – since would require the
Exchanger to sell >= 80% of the property thereby causing immediate
taxation (defeats purpose of the 1031)
• But could perhaps take the 1031 taxable boot proceeds and invest
them into a QOZ Operating Business that leases the target 1031
property from the Exchanger.
• Note that unlike acquisitions, leasing the tangible property from a
related property is allowed.

16. ©2019 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF
First American Title Insurance Company, and the operating divisions thereof, make no express or implied warranty respecting the
information presented and assume no responsibility for errors or omissions. First American, the eagle logo, and First American
Title are registered trademarks or trademarks of First American Financial Corporation and/or its affiliates.
The following presentation is for informational purposes only and is not and may not be construed as legal advice. No third party
entity may rely upon anything contained herein when making legal and/or other determinations regarding its practices, and such
third party should consult with an attorney prior to embarking upon any specific course of action.
First American Title Insurance Company, and the operating divisions thereof, make no express or implied warranty respecting
the information presented and assume no responsibility for errors or omissions. First American, the eagle logo, and
First American Title are registered trademarks or trademarks of First American Financial Corporation and/or its affiliates.
The following presentation is for informational purposes only and is not and may not be construed as legal advice. No third
party entity may rely upon anything contained herein when making legal and/or other determinations regarding its practices,
and such third party should consult with an attorney prior to embarking upon any specific course of action.
©2019 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF
First American Exchange is a Qualified Intermediary and is precluded from giving tax or legal advice. You must consult with your tax or legal advisor
about your specific circumstances. First American Exchange Company, LLC makes no express or implied warranty respecting the information presented
and assumes no responsibility for errors or omissions. First American, the eagle logo, and First American Exchange Company are registered trademarks
or trademarks of First American Financial Corporation and/or its affiliates.
The following presentation is for informational purposes only and is not and may not be construed as legal advice. No third party entity may rely upon
anything contained herein when making legal and/or other determinations regarding its practices, and such third party should consult with an attorney
prior to embarking upon any specific course of action.
Thank you!
Steve Ghirardo CPA ,MBA, MS, Real Estate Broker
GHIRARDO CPA
415.599.4901
steve@ghirardocpa.com
Alaine Bry Raven Vice President / Business Development Manager
First American Exchange Company
415.407.7862
ARaven@firstam.com