New IRS Regulations on Opportunity Zones
October 23, 2018 | BY Spencer Diamond
The IRS has recently released proposed regulations, along with a Revenue Ruling, creating greater guidance for Opportunity Zones.
While much remains to be learned, here are 5 takeaways from the Ruling and proposed laws:
- A Qualified Opportunity Zone Fund can be a corporation or a partnership. In the case where a partnership does not elect to defer any capital gains by reinvesting them in a Qualified Opportunity Zone Fund, individual partners can still make the election.
- A Fund can purchase an existing business located in an Opportunity Zone, provided that it meets the other legal requirements.
- The incentive to invest in a Qualified Opportunity Zone fund is available to individuals, corporations, trust funds, and other funds.
- If a Qualified Opportunity Zone Fund purchases real estate, an allocation must be made between the value of the land and a building.
- The requirements to invest capital to improve the purchased property only apply to the building. The land does not need to be improved.
For those who do not know, a Qualified Opportunity Zone investment comes as a part of the 2017 tax laws, created to spur development in distressed areas. It offers three major benefits to taxpayers with capital gains from other investments:
- If they are invested in a Qualified Opportunity Zone Fund, the original capital gains can be deferred for a period of up to seven years, so long as the gains remain in the Qualified Opportunity Zone funds.
- If the investor keeps the original capital gain in a Qualified Opportunity Zone Fund for five years, the original capital gain is reduced by 10 percent; if it is held for the full seven years, the original gain is reduced by 15 percent.
- If it is held for 10 years, when the Opportunity Zone property is sold, there will be no gain on any increase in the property’s value. As an example, if Fund A purchases a building for $500,000 and sells it 10 years later for $5,000,000, the entire transaction will be treated as a tax-free sale.
If you have any questions about this opportunity, please reach out to your Roth&Co financial adviser.
opportunity zone - real estate - tax break