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Abstract: 

The 2017 Tax Cuts and Jobs Act introduced a federal income tax program that has received much attention and could be an excellent tool for the development of properties within areas of our community designated as Opportunity Zones (OZs). Treasury Secretary Mnuchin has repeatedly stated that OZs will attract $100 billion in capital gain investments. These types of statements, along with the announced formation of dozens of Qualified Opportunity Funds (QOFs) to attract capital gain dollars for investment, highlight the potential opportunity this program represents for distressed communities. In October 2018, the IRS issued proposed regulations that provided some initial guidance about OZs, and in April 2019 the IRS issued a second set of proposed regulations (the “Round Two Guidance”). This article reports on both sets of proposals, and provides some basic background about OZs and QOFs. While the IRS may issue further guidance during 2019, certain investments already can qualify for OZ tax benefits. This article is not intended to be an exhaustive review but provides information for a basic understanding that can be further explored based on specific arrangements.

Keywords: opportunity zone, qualified opportunity fund, tax deferral, exclusion of income, tax-free appreciation, window of opportunity, timing requirements, start-up investments, qualifying investments, limitations on investments, Round Two Guidance

Affiliations:  1: Thompson Hine LLP; 2: Thompson Hine LLP.