Opportunity Zones

Opportunity zones are designed to incentivize investment and economic development in underserved communities. Established as part of the Tax Cuts and Jobs Act of 2017, developers may use a Qualified Opportunity Fund (QOF) to help fund projects located within an opportunity zone. This new source of investment dollars could prove to be a powerful economic tool if properly administered.

Under the statute, investors can create a QOF that would allow them to realize significant tax savings, as long as 90% of the fund’s assets are invested in qualified property and businesses within an opportunity zone.

The law allows investors to defer federal taxes on any capital gains income invested in a QOF. Additional tax benefits are provided for long-term investors.

However, these tax benefits are time-constrained. The deferral expires Dec. 31, 2026, requiring investors at that point to pay taxes on any deferred gains still invested in a QOF.

Resources

• Department of Housing and Urban Development (HUD) Opportunity Zones website
• IRS Frequently Asked Questions about Opportunity Zones
• IRS Draft Form 8996 (Updated Oct. 30, 2019)
• Opportunity zone resources, including maps of all designated QOZs

NAHB Comments

• December 2018 Comments: NAHB submitted comments to the Internal Revenue Service (IRS) on Dec. 18, 2018, on the proposed regulations regarding investing in qualified opportunity zones. NAHB believes the majority of the regulations are logical, fair and thoughtful, however, it recommends the Treasury Department and the IRS further clarify issues related to “working capital safe harbor.” NAHB also commented on the “original use” requirement as it pertains to vacant or abandoned property. Read the comments.
• June 2019 Comments: The IRS released a second set of proposed regulations in April 2019, and NAHB submitted additional comments to the IRS on June 27. NAHB encourages Treasury and the IRS to provide additional flexibility for vacant property and reduce the vacancy period from five years to three years. The comments also recommend that the agencies adopt an aggregate standard for purposes of meeting the substantial improvement test. Read the comments.

NAHB is providing this information for general information only. This information does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind nor should it be construed as such. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action on this information, you should consult a qualified professional adviser to whom you have provided all of the facts applicable to your particular situation or question. None of this tax information is intended to be used nor can it be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.