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Things to know about the new opportunity zone guidelines

Things to know about the new opportunity zone guidelines

After several months of waiting, real estate investors, developers and other keen commercial real estate observers have finally received answers to some of their many questions about the Opportunity Zone program.

The Department of Treasury on Friday released new regulations and some clarifications regarding the much-hyped Opportunity Zone program that can benefit investors, business owners and developers who place money in a qualified opportunity fund before deploying the investment in a designated opportunity zone in return for a hefty tax break.

“Overall, I think the regulations are a good start but incomplete,” Develop founder and CEO Steve Glickman said. Glickman is a former Obama administration official who spearheaded the Opportunity Zone policy.

“[The new regulations] will provide, I think, the impetus for a number of real estate investors and developers who have been on the sidelines to the marketplace pretty soon,” Glickman said.

He said the new regulations provides more flexibility than the former statute on acquisition timing, types of businesses and the substantial improvement test.

“I think Treasury and IRS took a practical approach that will facilitate investments in these designated areas,” said Lisa Starczewski, co-chair of Buchanan, Ingersoll & Rooney’s Tax Section and Opportunity Zones team.

Established late last year as part of President Donald Trump’s Tax Cut and Jobs Act of 2017, the Opportunity Zone program was created to help spur development in low-income neighborhoods as determined based on the U.S. census.

Each state nominated designated tracts and later sent the designations to the Treasury Department for certification. More than 8,700 communities nationwide are designated opportunity zones.

When the first set of rules came out earlier this year, investors were excited about the possibilities of the program and the prospect of receiving a 10% or 15% discount or a tax-free break on capital gains depending on how long they hold and sell their investments in these zones.

However, as more investors continued to study the initial draft, the less confident many became. Several investors were frustrated by the lack of information and guidance from the government, which had promised guidelines in the summer.

 

 

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