Treasury, IRS issue proposed regulations on new Opportunity Zone tax incentive

Treasury, RS ssue proposed regulatons on new Opportunty Zone tax ncentve

R-2018-206, October 19, 2018

R-2018-206, October 19, 2018

WASHNGTON —The Treasury Department and the nternal Revenue Servce today ssued proposed regulatons and other publshed gudance for the new Opportunty Zone tax ncentve.

WASHNGTON —The Treasury Department and the nternal Revenue Servce today ssued proposed regulatons and other publshed gudance for the new Opportunty Zone tax ncentve.

Opportunty Zones, created by the 2017 Tax Cuts and Jobs Act, were desgned to spur nvestment n dstressed communtes throughout the country through tax benefts. Under a nomnaton process completed n June, 8,761 communtes n all 50 states, the Dstrct of Columba and fve U.S. terrtores were desgnated as qualfed Opportunty Zones. Opportunty Zones retan ther desgnaton for 10 . nvestors may defer tax on almost any captal gan up to Dec. 31, 2026 by makng an approprate nvestment n a zone, makng an electon after December 21, 2017, and meetng other requrements.

Opportunty Zones, created by the 2017 Tax Cuts and Jobs Act, were desgned to spur nvestment n dstressed communtes throughout the country through tax benefts. Under a nomnaton process completed n June, 8,761 communtes n all 50 states, the Dstrct of Columba and fve U.S. terrtores were desgnated as qualfed Opportunty Zones. Opportunty Zones retan ther desgnaton for 10 . nvestors may defer tax on almost any captal gan up to Dec. 31, 2026 by makng an approprate nvestment n a zone, makng an electon after December 21, 2017, and meetng other requrements.

The proposed regulations clarfy that almost all captal gans qualfy for deferral. n the case of a captal gan experenced by a partnershp, the rules allow ether a partnershp or ts partners to elect deferral. Smlar rules apply to other pass-through enttes, such as S corporatons and ther holders, and estates and trusts and ther benefcares.

The proposed regulations clarfy that almost all captal gans qualfy for deferral. n the case of a captal gan experenced by a partnershp, the rules allow ether a partnershp or ts partners to elect deferral. Smlar rules apply to other pass-through enttes, such as S corporatons and ther holders, and estates and trusts and ther benefcares.

Generally, to qualfy for deferral, the amount of a captal gan to be deferred must be nvested n a Qualfed Opportunty Fund (QOF), whch must be an entty ed as a partnershp or corporaton for Federal tax purposes and organzed n any of the 50 states, D.C. or fve U.S. terrtores for the purpose of nvestng n qualfed opportunty zone property.

Generally, to qualfy for deferral, the amount of a captal gan to be deferred must be nvested n a Qualfed Opportunty Fund (QOF), whch must be an entty ed as a partnershp or corporaton for Federal tax purposes and organzed n any of the 50 states, D.C. or fve U.S. terrtores for the purpose of nvestng n qualfed opportunty zone property.

The QOF must hold at least 90 percent of ts s n qualfed Opportunty Zone property (nvestment standard). nvestors who hold ther QOF nvestment for at least 10 may qualfy to ncrease ther bass to the far market value of the nvestment on the date t s sold.

The QOF must hold at least 90 percent of ts s n qualfed Opportunty Zone property (nvestment standard). nvestors who hold ther QOF nvestment for at least 10 may qualfy to ncrease ther bass to the far market value of the nvestment on the date t s sold.

The proposed regulatons also provde that f at least 70 percent of the tangble busness property owned or leased by a trade or busness s qualfed opportunty zone busness property, the requrement that “substantally all” of such tangble busness property s qualfed opportunty zone busness property can be satsfed f other requrements are met. f the tangble property s a buldng, the proposed regulatons provde that “substantal mprovement” s measured based only on the bass of the buldng (not of the underlyng land).

The proposed regulatons also provde that f at least 70 percent of the tangble busness property owned or leased by a trade or busness s qualfed opportunty zone busness property, the requrement that “substantally all” of such tangble busness property s qualfed opportunty zone busness property can be satsfed f other requrements are met. f the tangble property s a buldng, the proposed regulatons provde that “substantal mprovement” s measured based only on the bass of the buldng (not of the underlyng land).

n ton to the proposed regulatons, Treasury and the RS ssued an tonal pece of gudance to ad taxpayers n partcpatng n the qualfed Opportunty Zone ncentve. Rev. Rul. 2018-29 provdes gudance for taxpayers on the “orgnal use” requrement for land purchased after 2017 n qualfed opportunty zones. They also released F 8996, whch nvestment vehcles wll use to self-certfy as QOFs.       

n ton to the proposed regulatons, Treasury and the RS ssued an tonal pece of gudance to ad taxpayers n partcpatng n the qualfed Opportunty Zone ncentve. Rev. Rul. 2018-29 provdes gudance for taxpayers on the “orgnal use” requrement for land purchased after 2017 n qualfed opportunty zones. They also released F 8996, whch nvestment vehcles wll use to self-certfy as QOFs.       

More nfaton on Opportunty Zones, ncludng answers to frequently-asked questons, s on the Tax Reform page of RS.gov. The Tax Ref page wll also feature updates on the mplementaton of ths and other TCJA provsons.

More nfaton on Opportunty Zones, ncludng answers to frequently-asked questons, s on the Tax Reform page of RS.gov. The Tax Ref page wll also feature updates on the mplementaton of ths and other TCJA provsons.

Clck here for complete lst of Opportunity Zones.

Clck here for complete lst of Opportunity Zones.


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