Opportunity Zones Regulations

Opportunity Zones Regulations 2018-10-29T21:26:27+00:00

Latest News on the Opportunity Zones Regulations

Download New Opportunity Zones Regulations released on October 19, 2018.
Download related revenue ruling on Opportunity Zones by clicking here.

On October 19, 2018, the Treasury Department issued much-anticipated guidance on Qualified Opportunity Funds (QOFs) and investments in them. The “New Regs” address several key areas, including:

  • The requirements that must be met by a taxpayer to defer gains by investing in an Opportunity Fund;
  • The rules permitting a corporation or partnership to self-certify;
  • The rules regarding the requirements that must be met by a corporation or partnership to qualify as an Opportunity Fund.

The IRS also released a revenue ruling addressing:

  • The application to real property of the “original use” requirement in section 1400Z-2(d)(2)(D)(i)(II), and;
  • The “substantial improvement” requirement in section 1400Z-2(d)(2)(D)(i)(II) and 1400Z-2(d)(2)(D)(ii).

In addition to providing you with links to download these important documents, we have complied below some of the buzz and commentary they have generated in the industry.

From the New York Times:

“The Treasury Department on Friday outlined new rules stemming from the $1.5 trillion tax overhaul last year that are aimed at giving investors confidence to pour billions of dollars into distressed economic areas across the United States.”

“The draft regulations, which will be subject to 60 days of public comment and likely finalized next spring, would allow individuals, corporations and other types of businesses to invest in new “opportunity funds.” The funds could only be seeded by capital gains, such as the proceeds from selling a home or a share of stock at a profit. Ninety percent of a fund’s investments must be in qualified opportunity zones. A business counts as being located in an opportunity zone if 70 percent of its tangible property is there, the regulation says. Treasury officials called that a “pretty favorable standard” for businesses. The exact percentage had been a point of contention within the Trump administration, as officials clashed in recent weeks over how flexible to make the regulation. An investor who rolls capital gains into an opportunity fund can eventually avoid up to 15 percent of the taxes otherwise owed on those investment gains. The investor will never pay taxes on any gains the fund accrues in its investments in the opportunity zones, provided that the investment is held longer than 10 years. Governors designated eligible census tracts as opportunity zones earlier this year, choosing from a list of areas in their states that met the law’s criteria for investment starvation, and Treasury has approved those designations.” [see original article here]

From Novogradac and Company:

“Treasury also released a related revenue ruling. Treasury will accept comments for 60 days.”  [see original post here]

From the Wall Street Journal:

“The Treasury created a 70-30 rule that measures whether a given business counts as having “substantially all” of its assets in an opportunity zone. Under that rule, as long as 70% of a business’s tangible property is in a zone, the business doesn’t lose its ability to qualify for the tax break. For example, a restaurant chain with four locations inside zones and one outside could get the break. A senior Treasury official described that rule as a “pretty favorable standard.” Because 10% of an opportunity fund’s assets can already be invested outside a zone, according to the tax law, applying a 70-30 rule to the remaining 90% means that as little as 63% of a fund could be invested inside a zone, according to the regulations. Treasury considered and rejected a 90-10 rule instead of the 70-30 rule.”

“The Treasury‘s proposed rules give businesses an additional 30 months to hold that working capital, as long as they have a plan for a qualifying project in a zone, the Treasury officials said. Those plans don’t have to be filed with the government but must be available for an Internal Revenue Service audit, the officials said. Congress deliberately created an open-ended program with few restrictions, with the idea of relying on market forces and the new tax incentive to guide development. It’s easily used for real estate, but operating businesses can also take advantage.” [see original article here]

For more information on setting up an Opportunity Zone Fund, visit our Opportunity Zones Resource Center. If you’d like to speak to someone, schedule a free consultation or call us at 1-800-339-1031.