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Roundtable Proposes Modifications to Treasury’s Opportunity Zone Rules

  • July 12, 2019
Treasury Department

The Real Estate Roundtable on July 1 submitted recommended clarifications for final Opportunity Zones tax regulations, which are expected from the Treasury Department before the end of 2019.  ( Roundtable comment letter , July 1) 

The Real Estate Roundtable on July 1 submitted recommended clarifications for final Opportunity Zones tax regulations. 

  • This month's Roundtable 12-page comment letter to Treasury and the IRS encourages the government officials to include 10 key clarifications in their final regulations. (The Roundtable submitted prior letters on OZ tax incentives in June 2018 and December 2018.) 

    The recommendations would: 
  1. clarify that gross section 1231 gain (gain that relates to property used in a trade or business) is eligible for investment in an Opportunity Fund; 

  2. further facilitate the use of "aggregator funds" for multi-asset Opportunity Funds; 

  3. allow existing owners to retain a carried or profits interest when selling property to related Opportunity Fund; 

  4. clarify that the working capital safe harbor applies during the construction of qualifying property; 

  5. encourage investment in languishing Opportunity Zone properties by treating investment in vacant property favorably; 

  6. promote ambitious and transformative projects by allowing assets to be aggregated together under the substantial improvement test; 

  7. ensure that property that straddles inside and outside of an Opportunity Zone qualifies; 

  8. treat property that will be demolished as "unimproved land" for Opportunity Zone purposes; 

  9. confirm that investors qualify for the tax benefits when an Opportunity Zone business sells an asset after 10 years; and 

  10. make certain additional clarifications related to Opportunity Zones and REITS.  
  • Cushman & Wakefield's new publication –  " In the Opportunity Zone: Location. Timing. Capital " – reports that capital inflows into OZs could increase by $100 billion.  

    Roundtable President and CEO Jeffrey DeBoer states in the letter, "Partnering with local leaders and entrepreneurs, real estate-focused opportunity funds will spur long-term, patient investment that drives productive economic activity.  Real estate projects financed through opportunity funds will generate well-paying jobs, improved infrastructure, and a built environment that helps attract and retain new businesses and employers. Regulatory clarifications along the lines described above will help ensure that the Opportunity Zone incentives fulfill their ambitious objectives."  
  • Cushman & Wakefield's new publication – "In the Opportunity Zone: Location. Timing. Capital" – reports that capital inflows into OZs could increase by $100 billion.  The company is tracking 138 large CRE funds targeting more than $44B in equity that intend to invest in multiple product types.  The report also states Opportunity Zone prices are rising 14% for redevelopment projects and 20% for land sites. (Commercial Property Executive, July 8) 

Additionally, Forbes and the Sorensen Impact Center at the University of Utah have launched a nation-wide competition to feature the top leaders, investors and entrepreneurs who are pioneering creative approaches to equitably revitalize distressed OZ communities throughout the nation.  Applications and nominations for the Forbes OZ 20 close Aug. 31.  (Forbes, July 11) 

 

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