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Overlooked Provision of Tax Act Offers Real Estate Investment Incentives

The Tax Cuts and Jobs Act of 2017 includes the “Opportunity Zone” program, which incentivizes investors to develop projects in designated Qualified Opportunity Zones (“QOZs”). Qualified Opportunity Zones are designated low-income community population census tracts within the various states and U.S. possessions. By providing tax benefits to potential investors through the application of unrealized gains, the program aims to spur investment in “distressed areas.”

The creation of “qualified opportunity funds” (“QOFs”), the vehicle through which such investments are to be made, has unsurprisingly attracted a lot of attention from investors.  Such investments provide significant tax benefits, including a temporary deferral of tax on gains, the elimination of up to 15% of the tax on the deferred gain, and the potential exclusion from tax on gain generated from the appreciation of investments within the QOF.

To qualify as a QOF, an investment vehicle must be organized as a corporation or partnership for the purpose of investing in QOZ property. In addition, 90% of its assets must be QOZ property. Asset status is determined by the average of the percentage of QOZ property held in the fund as measured on the last day of the first six-month period of the fund’s taxable year, and on the last day of that taxable year.

In a recent article on Bloomberg.com, EisnerAmper real estate tax partners Ken Weissenberg and Lisa Knee discuss the provision, as well as its potential impact on both investors and the communities they invest in. There is much still to be clarified in terms of the application of the program, particularly where the credits intersect with other tax rules. Guidance is expected from the IRS soon. Read more about the provision and its potential impacts,  Opportunity Zones and Opportunity Funds: A Major Tax Cuts and Jobs Act Investment Initiative, and at Bloomberg.com.

 

Kristen Lewis is the Director of Marketing for EisnerAmper LLP in Philadelphia Pennsylvania. She has written articles for CPA Practice Management Forum and the Pennsylvania Institute of Certified Public Accountants.

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