The Tax Cuts and Jobs Act, which was passed into law on December 22, 2017 (the “TCJA”), created new tax benefits to encourage investment, development, and redevelopment in low-income communities designated as Qualified Opportunity Zones (“QO Zones”). To encourage investment in these QO Zones, the TCJA provides taxpayers with an unprecedented opportunity to defer (and in some cases reduce) taxation of capital gains:
- If the gains are invested in a qualified opportunity fund (“QO Fund”) within 180 days, taxpayers can defer recognition of capital gain until the earlier of (i) the date on which the interest in the QO Fund is sold or (ii) December 31, 2026.
- Taxpayers may permanently exclude 10% of the deferred gain by holding the investment in the QO Fund for 5 years and they may permanently exclude 15% of the deferred gain by holding the investment in the QO Fund for 7 years.
- Capital gains that accrue during the period of investment in the QO Fund may be permanently excluded if the investment in the QO Fund is held for at least 10 years.
Recent guidance released by the IRS has clarified many issues relating to QO Zones and QO Funds, and additional guidance is expected in the near future.
Our experienced team of attorneys can provide a full range of interdisciplinary services to help investors, family offices, fund sponsors, managers, developers, contractors, innovators, business owners, urban and community planning organizations, local businesses, and others understand and implement the Opportunity Zone program for maximum benefit.
Lewis Rice has the knowledge and expertise to assist clients with all business, tax, and legal aspects of the new QO Zone program, including the formation and operation of QO Funds, financing and structuring development projects and investments by QO Funds, and advising with respect to investments in QO Funds. Our corporate, tax, banking, finance and real estate attorneys work together seamlessly to provide individualized advice on how the program can be used to achieve specific client goals.
We have extensive experience with complex and innovative economic development projects in all types of communities, including a variety of development incentives available at the federal, state and local level that can be supplemented with the new Opportunity Zone program to provide capital for projects and businesses. Lewis Rice also provides a full range of other services related to the Opportunity Zone program, such as advice on securities law compliance, including fund sponsor registration and exemptions, asset purchases and sales, and comprehensive tax planning.
For more information on opportunity zones and the recent IRS guidance, click here. You can also review the proposed regulations (REG-115420-18), Rev. Rul. 2018-29, and an IRS FAQ addressing a number of important issues relating to investments in QO Funds.