Additional Opportunity Zone Regulations Issued

On April 17, the IRS finally issued additional guidance (the 4/17 proposed regulations) concerning qualified opportunity zone (QOZ) investments following up on the first set of rules issued in October 2018 (see our article from October 24, 2018).  The guidance came in the form of a second set of proposed regulations that had been promised since early December.  Further, in two separate announcements, the IRS noted that it may, or it may not, decide to issue a third set of regulations in a couple of months. 

While QOZs promise economic development in designated low-income communities in exchange for tax benefits taxpayers willing to invest in those areas (see our article from July 11, 2018), some taxpayers appeared hesitant to invest in these areas until the IRS provided the guidance necessary to fully understand how the rules would be applied.  While much too voluminous to cover in detail within this article, the 4/17 proposed regulations answer a number of open issues including:

  • The definition of a trade or business (Hint: triple net lease activity is an issue);
  • The treatment of Section 1231 gains and losses and timing for reinvestment;
  • The consequences of purchasing unimproved land;
  • The definitions of various terms including “original use” and “substantially all”;
  • The treatment and valuation of leased property, including from related parties;
  • The events triggering deferred gain prior to a sale of interest or December 31, 2026;
  • How a qualified opportunity fund can reinvest capital upon the sale of qualifying property; and
  • How qualifying testing requirements are applied.

Further, the new regulations answer some, but not all, of the questions taxpayers and their advisors raised since the provision was enacted as part of the Tax Cuts and Jobs Act signed into law in December of 2017.  One significant unresolved item that potentially requires legislative action is the taxability of qualifying property sales.  Relief was provided regarding reinvestment of those proceeds to continue qualification, but the resulting gain from sale is taxable under normal tax rules. Additionally, issues left unanswered include the amount and type of data to be reported to the IRS, as well as penalty provisions for failure to meet the various qualification requirements.   

In summary, for those taxpayers interested in taking advantage of the tax benefits offered by investing in qualified opportunity funds, there is now sufficient guidance to provide investors the confidence necessary 1to structure their transactions to meet regulatory requirements.  The government desires to incentivize investment in QOZs and has done so by providing generally taxpayer-favorable regulations. 

Please do not hesitate to reach out to us if you have any questions on qualified opportunity zones. 

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2019 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on

IRS Releases First Guidance Regarding Cryptocurrency Since 2014
Business Advisors, Tax BY Vicky Lu
What's New? Highlights of the Taxpayer First Act of 2019
Tax BY George Adams
Tax Considerations – Professional Service Entities
Wearing the Color Pink: What an Experience!
Tax BY James Sayre
Impact of Tax Reform on Accounting for Income Taxes – Changes in NOL
2020 Retirement Plan Limitations

Register to receive our weekly newsletter with our most recent columns and insights.

Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us

contact us

Map of Pittsburgh Office
Pittsburgh

One PPG Place, Suite 1700
Pittsburgh, PA 15222

contactsd@schneiderdowns.com
p:412.261.3644     f:412.261.4876

Map of Columbus Office
Columbus

65 East State Street, Suite 2000
Columbus, OH 43215

contactsd@schneiderdowns.com
p:614.621.4060     f:614.621.4062

Map of Washington Office
Washington, D.C.

1660 International Drive, Suite 600
McLean, VA 22102