Opportunity Zones Proposed Guidance Released

On Oct. 19, the IRS issued its proposed regulations for the new Opportunity Zones tax incentive.

Passed in the Tax Cuts and Jobs Act of 2017, the Opportunity Zones program provides significant tax benefits to investors redeploying capital gains to newly created Qualified Opportunity Zones (QOZs).

QOZs are designated economically-distressed communities where Qualified Opportunity Funds (QOFs) may invest to receive preferential tax treatment.

QOFs are pools of realized capital gains, which must be invested in the QOF within 180 days of being realized. QOFs must be:

• certified by the U.S. Treasury Department
• organized as a corporation or partnership for investing in QOZ properties and businesses
• hold at least 90% of their assets in QOZ property or businesses, and
• are limited to equity investments in businesses, real estate, and business assets.

Investment in a QOF qualifies the investor to fully defer the payment of taxes on the capital gains until the investment is withdrawn from the fund. Additionally, investors can receive a 10 percent reduction on the deferred gains invested after five years, an add 5 percent after 7 years of total investment. After 10 years any appreciation of QOF investments will be free of additional taxes.

The deferral period cannot extend beyond Dec. 31, 2026, so to receive the full deferral taxpayers must be invested in QOFs by Dec. 31, 2019.

Thoughts on QOZs? ACG is considering submitting comments in response to Opportunity Zones proposal on behalf of the middle market. Responses will inform a potential comment letter and are due Dec. 28.

Please share your thoughts in response to the proposed regulations with policy@acg.org.