Opportunity Zones: A New Investment Opportunity
Community Revitalization by Rewarding Private Investment
Are you interested in reviving hard-hit areas in your community? Could you use a tax benefit, too? The newly created Opportunity Zones program, enacted as part of the Tax Cuts and Jobs Act of 2017, provides an opportunity to do both.
The Opportunity Zones program, found in Sections 1400Z-1 and 1400Z-2 of the Internal Revenue Code (“IRC”), is intended to spur investment in low-income or economically disadvantaged areas.
The tax incentives provide investors with an opportunity to defer recognition of gains on sales of assets, permanently reduce a portion of the deferred gain to be recognized and permanently exempt any future gain with respect to reinvested proceeds. This occurs by reinvesting the gain in a Qualified Opportunity Fund (“QOF”), an investment vehicle specifically focused on making investments in Qualified Opportunity Zone (“QOZ”) businesses and/or property, allowing for greater diversification than other tax deferral mechanisms.
Opportunity Zone Services
Cherry Bekaert has an established Opportunity Zones team with expert technical knowledge of key tax, accounting, transaction structuring and compliance issues. Our Opportunity Zone services provide you the tools you need to make the right investment decision.
Cherry Bekaert is uniquely positioned to help Funds and project sponsors take advantage of the opportunity zones program by providing:
- Fund organization and structuring for qualification under the rules
- Investment planning for qualified assets or trades or business of the Fund
- Asset testing and compliance for Qualified Opportunity Funds
- Income and asset testing and compliance for Qualified Opportunity Zone Businesses
As in individual investor, Cherry Bekaert can provide guidance in the investment fundamentals and assist with the following:
- Review of private placement memorandum or prospectus for funds for information and qualifications under the OZ program
- Advice and planning for eligible gains to rollover into OZ funds
- Provide projected tax returns (before and after) and net present value for comparison with other funds/projects
- Tax modeling to compare investment in OZ versus other deferral techniques such as 1031 exchange or other long-term investments
Tax Incentives Available
- Temporary deferral for recognition of realized gain
until as late as December 31, 2026- To the extent gain portion of proceeds is reinvested in QOF within
180 days of the sale or exchange of any asset, gain is not required
to be recognized in year of sale - Gain deferred is recognized upon the earlier of the date the
investment in QOF is sold, or December 31, 2026
- To the extent gain portion of proceeds is reinvested in QOF within
- Permanent reduction of deferred gain depending on
how long the investment in QOF is held- 10% of original deferred gain if QOF is held at least five years
before gain is recognized - Additional 5% of original deferred gain if QOF is held at least
seven years before gain is recognized
- 10% of original deferred gain if QOF is held at least five years
- Exemption from realized gain on QOF investment held
at least 10 years- Gain on subsequent appreciation is eligible for perma
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Opportunity Zones | Legislation and Pronouncements
Proposed & Final Regulations
- Proposed Treasury Regulations 115420-18: Investing in Qualified Opportunity Funds (released October 2018)
- Revenue Ruling 2018-29: Special Rules for Capital Gains Invested in Opportunity Zones (released October 2018)
- Proposed Treasury Regulations 120186-18: Investing in Qualified Opportunity Funds (released April 2019)
- Final Regulations TD 9889: Investing in Qualified Opportunity Funds (released December 2019)
IRS Guidance
Revenue Procedures
Treasury
Forms
- IRS Request for Comments on Tax Forms
- 2019 Form 1065
- 2019 Form 1065 Instructions
- 2019 Form 1120
- 2019 Form 1120 Instructions
- 2019 Form 1120S
- 2019 Form 1120S Instructions
- 2019 Form 1120-REIT
- 2019 Form 1120-REIT Instructions
- 2019 Form 4797
- 2019 Form 4797 Instructions
- 2019 Form 8949
- 2019 Form 8949 Instructions
- 2019 Form 8996
- 2019 Form 8996 Instructions
- Opportunity Zones | Legislation
- Opportunity Zones | Research and Reports
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Opportunity Zones | Cherry Bekaert Resources
Alerts
- Cherry Bekaert Associates Attend IRS’ Opportunity Zone Hearing
- Are Qualified Opportunity Funds or 1031 Exchanges Right for Me?
- IRS Releases Proposed Regulations on Qualified Opportunity Funds
- Opportunity Zones: A New Investment Opportunity
Advocacy
Webinar
Tax Reform & Qualified Opportunity Zones
Mark H. Cooter
Partner, Tax Services
Industry Leader, Real Estate & Construction Group
Managing Partner, SC Upstate Practice