NAHB Asks IRS to Clarify Key Questions on Opportunity Zones

Filed in Tax Reform by on September 11, 2018 0 Comments

Door on desert choosing new life.NAHB has joined the Bipartisan Policy Center and eight other national organizations to ask Acting Commissioner of the Internal Revenue Service,  David Kautter, to issue guidance on key issues facing investors interested in opportunity zones, established as part of the Tax Cuts and Jobs Act of 2017.

These issues include defining qualified investments, clarifying the oversight process for investment funds and clarifying and defining the vague terms included in the statute, such as the requirement that a target property be “significantly improved.”

Opportunity zones are designed to incentivize investment and economic development in under-served communities. Opportunity zones may offer developers a new source of financing and could prove to be a powerful economic tool if property administered.

Under the statute, investors can create a Qualified Opportunity Fund (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. After five years, the law includes a 10% basis adjustment for those deferred capital gains, reducing the investor’s tax liability.

After seven years, an additional basis adjustment of 5% on the deferred gains is granted, allowing investors to pay no federal taxes on 15% of their original investment. In other words, after seven years, an investor would only pay taxes on $85 of every $100 in capital gains invested in a QOF.

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.

For investments held at least 10 years, the investor can realize an additional tax benefit: No capital gains taxes would be owed on any appreciation of their initial investment.  However, there are questions regarding this benefit due the expiration of the deferral period in 2026, which the letter also seeks to clarify.

For more information, refer to the IRS Opportunity Zones Frequently Asked Questions or contact JP Delmore.


Leave a Reply

Your email address will not be published. Required fields are marked *