On May 1, 2019, the Department of Treasury published in the Federal Register its second set of proposed guidance related to the new Opportunity Zone tax incentive created by the 2017 Tax Cuts and Jobs Act. Opportunity Zones are communities where new investments may be eligible for significant tax incentives. The incentive is designed to spur economic development and job creation. Secretary Steven T. Mnuchin said, “We are pleased to issue guidance that provides greater flexibility for communities and investors as we continue to encourage investment and development in Opportunity Zones…This incentive will foster economic revitalization, create jobs and spur economic growth that will move these communities forward and create a brighter future.”
The second set of guidance defines the meaning of “substantially all” where at least 70 percent of the tangible property owned or leased by a trade or business is qualified opportunity zone (QOZ) business property and similarly, that “use” is satisfied if at least 70 percent of the property is located within a QOZ. The guidance also clarifies that sales or dispositions of assets by a Qualified Opportunity Fund (QOF) do not impact in any way investors’ holding periods in their qualifying investments or trigger the inclusion of any deferred gain reflected in such qualifying investments so long as they do not sell or otherwise dispose of their qualifying investment for purposes of section 1400Z-2(b). According to the guidance, a QOF has 12 months from the time of the sale or disposition or the return of capital to reinvest the proceeds in other QOZ property before the proceeds would not be considered QOZ property with regards to the 90-percent asset test.
As many of the Opportunity Zones will be designated in areas containing Brownfields redevelopment opportunities, SCS expects many of our clients will be interested in this opportunity to do well by doing good. If you are interested in investing in a potential brownfield site, contact SCS Engineers to help you evaluate and manage environmental concerns associated with your site. Visit www.scsengineers.com to learn more.
The following are links to the press release and second set of proposed guidance:
Within a few months, the Department of Treasury and the IRS expect to address the administrative rules that would apply to a QOF that does not maintain the required 90 percent investment standard as well as information-reporting requirements. SCS will provide an update when this information becomes available.