What You Need to Know About IRS' Updated Opportunity Zone Regulations

In April, the Treasury Department and IRS released a second set of proposed regulations related to the new opportunity zones tax incentive. NAHB has updated its resource page — nahb.org/oz — with a new FAQ outlining key points included in both sets of draft regulations. Established as part of the Tax Cuts and Jobs Act of 2017, opportunity zones provide tax incentives for investors with capital gains to invest in underserved areas affected by poverty and unemployment. More than 8,700 zones, or approximately 11% of all Census tracts in the United States, have been identified for investment, and the federal government is now working to coordinate other federal initiatives with the opportunity zone program. The April draft regulations tackled several concerns NAHB raised regarding the proposed regulations released in late 2018, including:

• Treatment of vacant property. The April draft regulations would allow property that is vacant for at least five years to satisfy the original-use requirement, which lowers the initial investment threshold.
• Unforeseen construction delays that could imperil the capital safe harbor. NAHB’s comments on the late-2018 proposed regulations addressed delays — particularly permitting delays — that may extend a project's completion beyond the 31 months allowed under the proposed capital safe harbor. The April draft regulations clarify that the safe harbor is not violated if the delay is attributable to waiting for government action.

To maximize the tax benefits, investors must keep their capital invested for periods of five, seven or 10 years. Additional guidance is expected in the coming months to address the administrative rules applicable to a qualified opportunity fund (QOF) that fails to maintain the required minimum investment standards as well as information reporting requirements for eligible taxpayers, including updates to applicable IRS tax forms. Other topics addressed in the April draft regulations include: what constitutes a qualifying investment; clarification of "substantially all" references in relation to qualified opportunity zone business property and qualified opportunity zone business; gross income requirements; and qualified opportunity fund reinvestment requirements. Taxpayers may submit comments on the April 2019 proposed regulations electronically via the Federal Rulemaking Portal at regulations.gov. (Reference IRS REG-120186-18.) All comments are due by July 1, 2019. For more information on opportunity zones, contact JP Delmore.