Treasury Releases Guidance on ‘Opportunity Zone’ Program

The Internal Revenue Service unveiled proposed regulations for the Opportunity Zones (OZ) incentive, addressing gains invested in qualified opportunity funds.

The rules provide investors with guidelines about how they can qualify for special tax breaks in so-called Opportunity Zones — underdeveloped areas where the U.S. government is trying to promote investment. They specify that only capital gains can qualify for the benefit and provide details on what types of entities can invest in Opportunity Zone funds, along with which projects qualify, a Treasury official said during a call with reporters.

The Opportunity Zones program, part of President Trump’s tax overhaul, gives tax incentives to developers and investors for building in low-income areas. There are over 8,700 designated Opportunity Zones across nationwide.  U.S. Treasury Secretary Steven Mnuchin says could be a $100 billion investment opportunity for real estate and businesses in distressed areas to revive Main Streets in small towns and urban metros.

The rules provide flexibility about what taxpayers can invest in funds and includes a favorable definition of what it means for a business to invest “substantially all” of its assets in property in opportunity zones.

It is expected that an additional set of proposed rules on opportunity zones by the end of the year, focused on continuing operations of opportunity-zone funds and the proposed rules will be finalized before April next year.

Ballard Consulting advises developers on Opportunity Zone legislation and sources of this type of capital.