The 2017 Tax Cuts and Jobs Act (as it is known) created a new tax-saving vehicle that has generated a lot of interest in both the real estate and the operating business community. The creation of Qualified Opportunity Zones (“OZ”) is intended to provide tax incentives to investors that make investments in low-income communities. The law is intended to provide investment in these communities to jumpstart economic development. What makes this program (the “OZ Program”) unique is that it allows investors to take capital gains from all sources (as opposed to the “like-kind” exchange rules associated with Section 1031 exchanges) and invest those gains in real estate or operating businesses located in designated Qualified Opportunity Zones. Once invested, and provided the investment meets the prescribed holding periods and other requirements, up to 15% of the original gain and 100% of the appreciation associated with the investment can avoid tax.
Any tax legislation with these types of benefits is usually not easy for investors to implement and that is particularly true with respect to the OZ Program. The OZ Program was passed in 2017 and greeted with tremendous enthusiasm, but only after 2 sets of extensive Proposed Regulations from the IRS, are the nuances of the OZ Program being understood by the investment and tax community.
AGG has been following the evolution of the OZ Program both through our review and analysis of the legislation and the IRS Proposed Regulations and through participation in the public meetings designed to solicit input on the portions of the legislation that require clarification.
While many sources and pundits have been discussing and offering information on the OZ Program for some time, only after the recent release of the second set of Regulations has much of the uncertainty of the OZ Program been resolved. We can guide clients who are interested in pursuing the tax benefits of the OZ Program.