Guidance Regarding Opportunity Zones
July 1, 2019
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.
Treasury released its first set of proposed Opportunity Zone (OZ) rules in Oct. 2018, followed by expanded guidance in April 2019. The Treasury rulemaking has reduced investor uncertainty and encouraged capital formation, job creation and productive real estate investment in struggling, low-income communities. However, certain questions remain that warrant additional, clarifying guidance. (reference: 169-page Treasury regulations and IRS news release, April 17).
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:
- 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;
- further facilitate the use of "aggregator funds" for multi-asset Opportunity Funds;
- allow existing owners to retain a carried or profits interest when selling property to related Opportunity Fund;
- clarify that the working capital safe harbor applies during the construction of qualifying property;
- encourage investment in languishing Opportunity Zone properties by treating investment in vacant property favorably;
- promote ambitious and transformative projects by allowing assets to be aggregated together under the substantial improvement test;
- ensure that property that straddles inside and outside of an Opportunity Zone qualifies;
- treat property that will be demolished as "unimproved land" for Opportunity Zone purposes;
- confirm that investors qualify for the tax benefits when an Opportunity Zone business sells an asset after 10 years; and
- make certain additional clarifications related to Opportunity Zones and REITS.