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Opportunity Zones Created to Incentivize Investments in Low Income Communities

Berdon Tax Team
07.09.2018 | Client Alert

The Tax Cuts and Jobs Act (TCJA) added new Code sections 1400Z-1 and -2 to incentivize investment in certain designated low income or distressed communities (known as “qualified opportunity zones”). The IRS recently released Notice 2018-48, which provides a complete list of these designated opportunity zones. The list, segregated by state, provides census tract data for each opportunity zone.

Investment Incentive

Investment in these opportunity zones, made through “qualified opportunity zone funds,” is tax advantaged. Capital gains from the disposition of unrelated property that are invested in these funds are deferred until, potentially, December 2026, and 10% or 15% of that gain may be eliminated based on the investor’s holding period in the fund.[1] Moreover, a ten-year holding period in the fund eliminates tax on any subsequently realized appreciation in the fund investment.

Qualified opportunity zone funds are partnerships or corporations formed for the purpose of investing in qualified opportunity zone property, generally eligible business property located in an opportunity zone. Qualified funds must satisfy an asset test requiring 90% of its assets be invested in opportunity zone property. Eligible entities self-certify as to fund status by filing a form (to be released this summer) with its timely-filed tax return.

Certification and Designation

Through a certification and designation process, state governors identified and nominated a select number of census tracts as opportunity zones, which the IRS then certified and designated as such. Notice 2018-48 provides the final list of IRS-designated opportunity zones. The final program has designated opportunity zones in all 50 states, the District of Columbia, and five US possessions.

For additional opportunity zone resources, including an interactive map, see https://www.cdfifund.gov/Pages/Opportunity-Zones.aspx.[2]

The IRS is expected to issue critical guidance on opportunity zones in the near future. Look for our alert providing further details following the release of these rules.

Questions? Reach out to your Berdon tax advisor.

Berdon LLP New York Accountants

[1] To be eligible for deferral, gains must be rolled into a qualified opportunity zone fund within 180 days of the sale or exchange.

[2] See also https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions.