Final Opportunity Zone Regulations Provide Clarity but Add Complexity

In late December, the Treasury Department and Internal Revenue Service (IRS) released the final regulations on investing in qualified opportunity funds (QOFs), which clarify many key issues regarding investments in opportunity zones and how to qualify for the associated tax benefits. NAHB has reviewed the final regulations and updated its frequently asked questions (FAQ) webpage to note key issues related to real estate investments. The FAQs and more information on opportunity zones can be found at nahb.org/oz.

The final regulations focus heavily on accounting issues relating to QOFs. In particular, the regulations set up a detailed set of rules for when certain transactions trigger an “inclusion event,” which is a transaction that may terminate an investor’s qualifying investment. NAHB strongly recommends its members operating a QOF consult with a tax professional prior to making any type of distribution or other transaction to ensure such action does not inadvertently trigger an inclusion event.

The final regulations finalize a number of key requirements for real estate development. This includes:

• The working capital safe harbor, which seeks to protect investors from permitting and other government approval delays,
• Minimum investment thresholds for vacant property, and
• Special rules for the redevelopment of brownfield sites.

Detailed information can be found on NAHB's FAQ webpage.