In an article published recently in Bloomberg Tax’s Tax Management Real Estate Journal, Trey Webb discusses the latest round of regulations from the Internal Revenue Service (IRS) on qualified opportunity zones, which were first introduced in Tax Cuts and Jobs Act signed in December 2017.
The recent regulations issued in April 2019 clarify many of the questions that lingered after qualified opportunity zones were introduced. In his article, Trey unpacks some of the provisions in the latest regulations and what they clarify for investors, such as:
- Investors are now allowed more flexibility to exclude a gain if the fund investment sells the underlying opportunity zone property instead of selling the actual fund investment.
- For a business to be a qualified opportunity zone business, at least 50% of the gross income must derive from an active trade or business. The new regulations provide that the ownership and operation (including leasing) of real property used in a trade or business will be treated as the active conduct of a trade or business.
- Investors can now contribute property to a qualified opportunity fund as an eligible investment, giving investors more options regarding how to fund qualified opportunity funds when deferring gain.
- Gains that are now eligible for investment in a qualified opportunity fund.
- Rules for when certain transactions known as “inclusion events” will jumpstart the deferred gain from a qualified opportunity fund investment.
“Taxpayers have shown a lot of interest in qualified opportunity zone fund investments,” Trey explained. “The issuance of guidance in the form of proposed regulations will help them feel more comfortable making investments. Hopefully, the IRS will maintain its mostly taxpayer friendly posture as they finalize the proposed regulations and also provide additional guidance on remaining issues for QOFs and their investors.”