With all the tax reform talk since last Fall you may have missed the information on Opportunity Zones.
Essentially, people who divest of investment property, not just real estate, can defer tax on the gain for up to 10 years by investing in a Qualified Opportunity Zone (QOZ). Ballard Spahr LLP released a Primer on Qualified Opportunity Zones well worth your while reading.
Information is available on the Community Development Financial Institutions Fund website and the IRS website.
Each State nominated their Opportunity Zones by March 21, 2018, but could receive a 30-day extension. The Treasury Department had 30 days to designate the census tracts. Each QOZ will exist for 10 years from designation (or December 31, 2018 the mandatory expiration date).
The tax incentives are designed to attract investment to low income areas by deferring taxes on qualified gains from other investments such as stocks, mutual funds, real estate in other areas, and other investments.
There are specific requirements in order for the business to be a Qualified Opportunity Zone Business. Some of those qualifications include:
- All the tangible property owned or leased by the business is QOZ Business Property.
- At least 50% of the business’ total gross income comes from active trade or business within an QOZ and a large portion of the business’ intangible property is used in the conduct of the trade or business in the QOZ.
- The business is not one of the unallowed business types such as country clubs, suntan facilities, gambling, stores whose primary business is selling alcoholic beverages to take off premises. There are several other types of unallowed business, so check the rules before investing.
An investor must re-invest the gain from a sold investment into an QOZ investment within 180 days of the sale or exchange. In some cases, a sale made prior to January 2018 may be eligible as well. Check with your tax advisor and the IRS for allowable investment information.
You can see the map of Qualified Opportunity Zones and check the areas you or your investor clients are most interested. Look for QOZ in blue. A list of QOZ census tracts as of June 14, 2018 is also available. A final list will be published on the IRS website sometime in the future.
The Arizona Commerce Authority (ACA) has additional information you may be interested in as well.