IRS Issues Opportunity Zone Guidance
The IRS released new guidance on the rules and regulations for Opportunity Zone investments. These regulations relate to the Tax Cuts and Jobs Act (TCJA), the tax reform legislation enacted in December 2017.
A key part of the newly released guidance clarifies the “substantially all” requirement for the holding period and use of the tangible business property:
- For use of the property, at least 70 percent of the property must be used in a qualified opportunity zone (QOZ).
- For the holding period of the property, tangible property must be QOZ business property for at least 90 percent of the qualified opportunity fund (QOF) or QOZ business holding period.
- The partnership or corporation must be a QOZ business for at least 90 percent of the QOF holding period.
The guidance also makes note that there may be situations where deferred gains can become taxable if an investor transfers their interest in a QOF. One example would be if the transfer is done by gift, then the deferred gain could become taxable. Inheritance by a surviving spouse is not a taxable transfer, nor is a transfer upon death of an ownership interest in a QOF to an estate or a revocable trust that becomes irrevocable upon death.
This proposed guidance will be submitted to the Office of the Federal Register (OFR) for publication. The version of the proposed rule released today may vary slightly from the published document if minor editorial changes are made during the OFR review process. The document published in the Federal Register will be the official document.