Final IRS Opportunity Zone Regs Eagerly Awaited
Since the government has been reopened temporarily, developers and property owners have been anticipating IRS guidance on the new Qualified Opportunity Zone (QOZ) provisions included in the Tax Cuts and Jobs Act. The QOZ incentive provision allows taxpayers who recognize a gain from the sale of an asset (including non-real estate assets such as stocks or securities) to defer the tax on the gain by reinvesting the proceeds from the sale within 180 days into a QOF formed and operated for the purpose of investing in QOZs, which have been designated in all 50 states.
Gains reinvested into a QOZ can be deferred until Dec. 31, 2026 (with a small portion of the deferred gain potentially escaping tax altogether if the investment is made before Dec.31, 2019, or Dec. 31, 2021). More significantly, if the investment in the QOF is held for more than 10 years, then the basis of the investment is treated as being equal to its fair market value on the date the investment is sold, and all of the future gain on the investment is effectively exempt from tax.
On Oct. 19, 2018, the Treasury Department released interim guidance on the program, saying buyers could begin investing in opportunity zone qualified properties or businesses. What’s prevented some investors from doing so is the lack of clarity about the program and lack of final specific guidelines written into the law.
As a result of the government shutdown, the public hearing that was supposed to have been held on Jan. 10, 2019, before the IRS, which would have answered questions and shaped the final guidelines, was indefinitely postponed. By the Dec. 28, 2018, deadline for public input, 145 comments about the QOZ program were submitted by representatives of housing agencies, development councils, real estate associations, local municipalities, property investors, and private citizens nationwide, according to the Regulations.gov docket. Some comments inquired as to how Opportunity Zones will work alongside other tax incentives such as the LIHTC and New Markets Tax Credit programs.