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Puerto Rico Financing Alternatives

by Francisco J. De Armas, Esq.

The Opportunity Zone Act: Investing in Puerto Rico

Written by Francisco De Armas-Cubas

Created in 2017 and quickly becoming a preferred investment strategy for individuals and corporations, Opportunity Zones (OZs) offer significant tax benefits. Puerto Rico has been designated almost in its entirety as an Opportunity Zone. The Opportunity Zone Act is one of the most important legislative developments in recent years and has the potential to move billions of dollars into low-income or financially distressed communities. 

Creation of Opportunity Zones

The Tax Cuts and Jobs Act of 2017 (TCJA), known as the Opportunity Zone Act, allows investors to defer certain capital gains taxes by investing in Opportunity Zones (“OZ”). Investments must be made in Qualified Opportunity Zone Funds or businesses to be eligible for tax breaks.

Puerto Rico’s Diverse Opportunity Zones

Puerto Rico has 863 designated OZs, including two census tracts added in 2018, 837 low-income communities, and 26 additional communities. The OZs are a combination of rural, semi-rural, and urban areas. 

In 2019, the government of Puerto Rico strengthened existing laws and made the idea of investing in a Puerto Rican OZ even more appealing. A new law entitled “the Incentives Code of Puerto Rico” clarified how capital gains generated from qualified OZ investments would be treated locally and provided tax credits for eligible investments. 

How Does an Opportunity Zone Investment Work?

Investors (individuals, families, or business interests) can file a Form 8896 to self-certify what is known as a Qualified Opportunity Fund (“QOF”), which is an investment vehicle that can be structured as a corporation or as a partnership. Each Fund is required to hold a minimum of 90% of its assets in a qualifying OZ area. Here is how it works:

•The Investor invests some or all of the capital gain by acquiring an equity interest in a QOF within 180 days of the sale generating the capital gains or the date the capital gain is realized.

•The QOF invests 90% of its assets in a Qualified Opportunity Zone Entity (QOZE).

•The QOZE invests at least 70% of its assets in a Qualified Opportunity Zone Business (QOZB).

•The Investor defers the U.S. federal capital gain tax until the earlier of the sale of the equity interest in the QOF or Dec. 31, 2026.

•Depending on how long the investment is held, the Investor may reduce the amount of the capital gain subject to US federal income tax on Dec. 31, 2026:

•The investor’s gain on the sale or exchange of the equity investment in the QOF is exempt from U.S. federal income tax if held for at least 10 years.

How to Buy a Home

A step by step guideline by Francisco De Armas Cubas to buying a home. The process of home buying is very easy and involves obtaining information from a number of lenders until finally you find the home you wish to get. It involves meeting with lenders in person, having your credit checked, evidence of savings and income HMRC has to offer you and a copy of the loan contract. Following this it is possible to complete your purchase and move into your new home. How to Buy a Home Checklist After this the stage where it is checked that you can afford purchasing it takes place. During this you do have to offer some good income as proof of age such as employment, state benefits, pension or pensions, earnings etc.

What about Credit Checks

The first thing that is checked is that you are legally entitled to buy the whole home that has been offered. The home must not have any mortgage on it and the lenders when offering you the mortgage also want to see that the borrower will be able to pay back the mortgage as assured. Some lenders in the UK also ask for evidence of 5% of income being deposited into a bank account. This is a method that is used to show the borrower is serious in providing security. If the borrower can show they can afford to pay the loan but they cannot account for the credit check then it is withdrawn from the sale of the property. If you are coming to a loan agency and the process has been completed then you will need to go through the same hands as on the pre-approval stage.

What About Required Documents?

In most cases identity proof, address proof and proof of employment are needed, as the lenders will also take evidence of income in calculating how much you may afford to buy. For example if you were to earn £40,000 then these documents could suggest that you can afford to buy a property worth £180,000 or more. If a deposit has already been paid then these can be used. Rements are required as proof of ongoing income. Bank and building society statements are to be produced. The Broker must also submit bank or building society statements. If you are clearing fees and you believe that they have been paid out already then you will be advised to make sure they have been.

Can’t Buy a Property If You Have a CCJ

If you have a CCJ against you then you will not be able to buy a property. If you have one against you and want to buy a home then pay it immediately. If you don’t have one against you when applying for a mortgage and have a CCJ against you then there will be a reason why you are refused. Perhaps you cannot afford to pay any of the debt. If this is the case then you may be wrong. If you cannot fully meet the debts that have been brought against you then you could be declined for a mortgage. The CCJ record will only be updated upon completion of the mortgage so if you can show a late payment then this will show. If you cannot afford the mortgage because of the absence of CCJs then there could be a problem. The solution is to arrange a short sale if you can. For further information on this see here.

How Long Will the Mortgage Take to Purchase?

This will depend upon the size of property, how many rooms you would like to purchase and how much you can afford. The average time for a first time buyer to obtain their first mortgage is approximately six months, that is not an accurate figure however it is advisable to take six months to five years when purchasing a home. However all loans are based on a percentage of the property value so if you do have a good deposit and can afford to pay the monthly repayments then you may find difficulties. For this reason it is recommended to use a mortgage broker who is fully equipped to help you.

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