The Internal Revenue Service has issued updated regulations regarding the Opportunity Zone tax break created by the 2017 tax reform legislation. Investors have proven slow to seek Opportunity Zone investments because of ambiguities and a lack of details in The Tax Cuts & Jobs Act statute and the limited scope of initial guidance issues in October 2018. The new guidance is more sweeping and offers more definite answers to many of the open questions.
Opportunity Zone investments offer two tax benefits:
- Deferral of capital gain recognition on other assets sold before an Opportunity Zone investment until earlier of (1) sale of the new investment or (2) December 31, 2026.
- 100 percent elimination of capital gain on the Opportunity Zone investment itself, if held more than 10 years, or reduction of capital gain if held at least five, but not greater than 10 years.
Requirements exist regarding investment timing, legal structure, and investment characteristics. The program generally favors taxpayers with reliable access to emergency liquidity and a longer-term investment horizon.