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Will Origin QOZ Fund III distributions be taxable?

The fund will make three different types of distributions:

1. Distributions of refinance proceeds
2. Distributions of operating cash flow
3. Distributions for investor redemptions

Distributions of refinance proceeds

These are considered “debt-financed” distributions, which will be treated as a return of invested capital for tax purposes and not taxable.

Distributions of operating cash flow

Each investor is taxed based on their pro rata share of taxable income or loss passed through to them based on their pro rata ownership of the fund. We intend to make quarterly distributions of operating cash flow once the portfolio has been built, stabilized and put into operation. While these distributions will technically be taxable, we expect property depreciation and other tax-deductible expenses to partially or fully tax-shelter distributions of operating cash flow.

Distributions for investor redemptions from the fund

QOZ fund investors are exempt from federal taxes on capital gains resulting from property sale and redemption proceeds, so long as the investor is in the fund for at least 10 years before redeeming or any properties being sold.

Note that while QOZ regulations allow for depreciation to be utilized to shelter, or offset, distributions of operating cash flow, investors who remain in the fund for at least 10 years before redeeming will receive a 100% step-up in basis upon redeeming from the fund. Accordingly, investors will not be subject to depreciation recapture upon redeeming so long as they do not redeem before being in the fund for at least 10 years.