This article from Forbes Magazine is one of the most comprehensive pieces we’ve seen related to Opportunity Fund Zones. Many of our clients are asking questions about this tax advantaged vehicle. Here’s a quick overview. If you have time, we recommend clicking through and opening up the PDF to read the full article.
IRS Releases Latest Round of Opportunity Zone Regulations: Where Do We Stand Now?
As part of the Tax Cuts and Jobs Act, Congress enacted two companion provisions designed to encourage investment and economic growth in certain low-income communities. First, Sec. 1400Z-1 paved the way for nearly 9,000 such low-income communities to be designated as “qualified opportunity zones” (QOZs). In turn, Section 1400Z-2 offers three federal income tax incentives to a taxpayer who invests in a business located within one of these zones: (1) the temporary deferral of capital gains, to the extent the gains are reinvested into a “qualified opportunity fund” (QOF); (2) the partial exclusion of previously deferred gains when certain holding period requirement in a QOF are met; and (3) the permanent exclusion of post-acquisition gains from the sale of an investment in a QOF held longer than 10 years.
While Sec. 1400Z-2 teases a tantalizing menu of tax breaks, the statutory language was to put it kindly, vague and confusing. As a result, taxpayers were initially uncertain of how to meet the various investment requirements to achieve the promised tax benefits.
On Oct. 19, 2018, the IRS published proposed regulations providing much of the direction taxpayers had been seeking. And while those regulations represented a giant step forward in understanding how to implement an opportunity zone project, many questions remained. Last week, the IRS sought to address many of those questions by publishing a second set of proposed regulations. These regulations provide much neede clarity on conducting an operating business within a QOZ, while also providing additional flexibility for QOFs that wish to purchase raw land, lease property to be used in their business, receive ongoing inflows of invested capital, or dispose of assets and reinvest the proceeds in replacement property. In addition, the latest regulations provide relief for those investors who do not sell their interest in a QOF after ten years, but rather cause the QOF to sell its assets
This discussion will take a look at the newly-issued proposed regulations from the perspective of the manner in which they address questions raised by the initial round of proposed regulations.
Read the full article for:
· A deep dive into the original statute and the initial regulations
· Overview and analysis of the recent proposed regulations
· A glossary of important acronyms
· Ten questions that are answered by the new regulations
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