Latest News on Opportunity Zones
U.S. Treasury/IRS Publish Proposed Regulations on Opportunity Zones
On October 29, 2018 The U.S. Treasury published its first set of proposed regulations governing Opportunity Zone tax incentives. Comment deadline on the proposed rules is December 28, 2018, and a public hearing is scheduled for January 10, 2019.
Below is a summary of key points of the proposed regs, as articulated by Treasury:
- Investors may defer tax on almost any capital gain up to Dec. 31, 2026 by making an appropriate investment in a zone, making an election after December 21, 2017, and meeting other requirements.
- Almost all capital gains qualify for deferral. In the case of a capital gain experienced by a partnership, the rules allow either a partnership or its partners to elect deferral. Similar rules apply to other pass-through entities, such as S corporations and their shareholders, and estates and trusts and their beneficiaries.
- Generally, to qualify for deferral, the amount of a capital gain to be deferred must be invested in a Qualified Opportunity Fund (QOF), which must be an entity treated as a partnership or corporation for Federal tax purposes and organized in any of the 50 states, D.C. or five U.S. territories for the purpose of investing in qualified opportunity zone property.
- The QOF must hold at least 90 percent of its assets in qualified Opportunity Zone property (investment standard). Investors who hold their QOF investment for at least 10 years may qualify to increase their basis to the fair market value of the investment on the date it is sold.
- The proposed regulations also provide that if at least 70 percent of the tangible business property owned or leased by a trade or business is qualified opportunity zone business property, the requirement that “substantially all” of such tangible business property is qualified opportunity zone business property can be satisfied if other requirements are met. If the tangible property is a building, the proposed regulations provide that “substantial improvement” is measured based only on the basis of the building (not of the underlying land).
Mayors Meet with Treasury Secretary Mnuchin
On September 6, 2018, USCM President Columbia Mayor Steve Benjamin led a delegation of mayors to meet with Treasury Secretary Steve Mnuchin to urge the department to issue regulations as soon as possible governing Opportunity Zone tax incentives. The delegation included Mayor Benjamin, USCM Vice President Rochester Hills (MI) Mayor Bryan Barnett, Second Vice President Louisville Mayor Greg Fischer, Detroit Mayor Mike Duggan and Mesa Mayor John Giles.
It is important to note that the U.S. Conference of Mayors called on Treasury to adopt the 70% rule referenced above in the meeting with Secretary Mnuchin (See below).
Great to discuss opportunity zones with some dedicated members of the US Conference of Mayors. Thank you for your service to this nation! 🇺🇸 pic.twitter.com/f6z1FhovT2— Steven Mnuchin (@stevenmnuchin1) September 6, 2018
Louisville Mayor Greg Fischer Announces First Opportunity Zone Investment
Additional community partners that are investing in Opportunity Zones include OneWest, a nonprofit community development organization that recently purchased its first property on 18th Street, with plans to redevelop it as a restaurant or retail space. The Louisville Urban League has also invested $35 million for the Track on Ali project.
The team at Louisville Forward, the city’s community and economic development agency, is ready to work with businesses and investors to maximize Louisville’s potential for its Opportunity Zones by providing concierge project management, offering incentives for projects in CDBG-eligible census tracts, and working to accelerate the permitting process.
The city is also working to identify the needs of investors, developers, and business owners, while connecting them with resources that will help support potential projects. To be listed in the city’s database, please complete the form by clicking on the link here.
About Opportunity Zones
Section 13823 of the Tax Cuts and Jobs Act of 2017 establishes a new section of the Internal Revenue Code (1400Z1), which sets forth a process for the designation of Opportunity Zones and the establishment of tax incentives for investors in Opportunity Funds. The provision is designed to spur investment in low-income communities. The language included in the tax bill was originally sponsored in earlier legislation by Senators Tim Scott (R-SC) and Cory Booker (D-NJ) and Representatives Pat Tiberi (R-OH) and Ron Kind (D-WI)
Over 8,700 Qualified Opportunity Zones (QOZs) have been certified by the U.S. Department of Treasury after being nominated by their state’s Governors. According to EIG three quarters of certified QOZs lie within metro areas. High density urban zones comprise 39.8% of total zones; low density rural areas comprise 38.2% and medium density suburban zones equal 22.2%. 69% of the population of QOZs live in census tracts that are severely distressed. The average poverty rate of QOZs is 31%, significantly higher than the 20% eligibility threshold.
See “Opportunity Zones Mapping Tools” in the resources section below for a listing of designated Opportunity Zones.
Now that Opportunity Zones have been designated, Mayors have several opportunities to lead by:
- Identifying viable existing or new projects and investment opportunities to market to qualified Opportunity Funds.
- Convening community and business leaders to develop strategic plans for zones that couple public project priorities with the private investment projects to streamline and coordinate market growth in low-income areas.
- Creating their own opportunity funds in partnership with existing national or local financial institutions.
- Click here for the Treasury, IRS initial press release of October 19, 2018.
- Click here for the proposed regulations as they appear in the Federal Register, October 29th 2018.
- Opportunity Zones mapping tool
- Letter to Acting Commissioner Kautter on the issuance of guidelines (August 23, 2018)
- Guidelines for Opportunity Zones from the Department of the Treasury
- Department of Treasury Press Release: “Treasury, IRS Issue Guidance On Opportunity Zones To Spur Private Investment In Distressed Communities”
For More Information
If you have any questions about opportunity zones are want to get more information, please contact Dave Gatton at 202-293-7330.