Real estate developers, fund sponsors, and property owners have been eagerly awaiting guidance on the new Qualified Opportunity Zone (QOZ) provisions included in last December’s Tax Cuts and Jobs Act. On Oct. 19, 2018, the IRS issued the proposed regulations, which include some favorable rules that should make the QOZ incentive a powerful tool for raising money or making investments in QOZs.
By way of background, the new QOZ incentive provision allows taxpayers who recognize a gain from the sale of an asset (including non-real estate assets such as stocks or securities) to defer the tax on the gain by reinvesting the proceeds from the sale within 180 days into a Qualified Opportunity Fund formed and operated for the purpose of investing in certain QOZs which have been designated in all 50 states. A map of all QOZs can be found here.
Gains reinvested into a QOZ can be deferred until Dec. 31, 2026 (with a small portion of the deferred gain potentially escaping tax altogether if the investment is made before Dec.31, 2019 or Dec. 31, 2021). More significantly, if the investment in the QOF is held for more than 10 years, then the basis of the investment is treated as being equal to its fair market value on the date the investment is sold, and all of the future gain on the investment is effectively exempt from tax.
