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Qualified Opportunity Zones: Disaster Relief and More

  • In light of the recent California wildfires and other natural disasters, on December 10, 2018, Representative Mark Meadows (NC) introduced the Disaster Recovery and Opportunity Act of 2018. This Act would allow the chief executive officers of states with federally declared disaster areas to declare 5% of those applicable disaster tracts as qualified opportunity zones (“QOZs”). This new legislation was referred to the House Ways and Means Committee.

The 2017 Tax Cuts and Jobs Act (TCJA) provides incentives for investments in a QOZ by means of temporary capital gain deferrals and ultimately permanent exclusion from gross income of capital gains, if certain requirements are met. Under the TCJA, any gain from the sale or exchange of property by a taxpayer to an unrelated person, that is invested in a QOZ through a qualified opportunity fund (‘QOF”) within 180 days of the sale of that property, is excluded from gross income until the earlier of the date the investment in the QOF is sold or December 31, 2026.  At the taxpayer's election, any post-acquisition capital gain on the investment in the QOF can be excluded if it is held for ten years.

  • On December 12, 2018, President Trump signed an executive order that established the White House Opportunity and Revitalization Council. This council will be chaired by Secretary of Housing and Urban Development Ben Carson and will include representatives of 12 additional federal agencies, including the Treasury, Agriculture, Labor, Commerce, and Transportation departments, the Small Business Administration and Office of Management and Budget.

The group’s mission will be to engage with all levels of government on ways to better use taxpayer dollars to revitalize urban and economically distressed communities located in QOZs. This includes assessing ways to minimize regulatory and administrative costs of investing in QOZs.

The establishment of this Council has been praised as a positive step for the QOZ program, which provides significant tax incentives for investors and is expected to encourage at least $100 billion in private investments in nearly 9,000 communities around the United States.

  • Treasury has confirmed that it plans to release additional opportunity zone proposed regulations in January, explaining how the tax incentive will operate in underserved communities. Please stay tuned…

Douglas Tapp is a Senior Tax Manager with more than 20 years of public accounting experience with a focus on planning and compliance for closely held businesses and their owners.

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