June 21, 2018 IRS announces final designated Opportunity Zones, adding four states The IRS has released the final round of designations of Opportunity Zones, approving submissions in the last four states, which will remain in effect for 10 years. New investments of capital gain properly made in these Opportunity Zones will now qualify for preferential tax treatment. The program has now designated Opportunity Zones in all 50 states, the District of Columbia and five US possessions. Background The Tax Cuts and Jobs Act (TCJA) created Opportunity Zones to spur investment in distressed communities throughout the country by granting investors preferential tax treatment. Such investments must be made through Opportunity Funds, which are specially created investment vehicles that must have at least 90% of fund assets invested in Opportunity Zones. The preferential tax treatment offered under the Opportunity Zone program is threefold: (1) Investors can defer tax on capital gains invested into Opportunity Zones until no later than December 31, 2026; (2) Investors that hold the Opportunity Fund investment for five or seven years can receive a 10% or 15% reduction on their deferred capital gains tax bill; and (3) Investors that hold the Opportunity Fund investment for at least 10 years can receive the added benefit of paying no tax on any realized appreciation in the Opportunity Fund investment. Approved zones Submissions were approved for: Florida, Nevada, Pennsylvania and Utah. Earlier in 2018, the IRS designated Opportunity Zones in the remaining 46 US states, the District of Columbia, American Samoa, Guam, Northern Marianas Islands, Puerto Rico and the Virgin Islands. (See Tax Alerts 2018-0915 and 2018-1070.) The CDFI Fund, which supports the IRS with the nomination and designation process, provides an interactive mapping tool that includes a data layer for the newly designated Opportunity Zones. Users can perform searches by address or census tract to determine whether specific locations fall within Opportunity Zones. To use the mapping tool for this purpose, click here and select only the "Opportunity Zone Tract Designated" data layer. Implications Opportunity Zones have now been designated in all 50 states, as well as several territories, marking a major milestone in this new program. While we expect the IRS to issue guidance on certain key aspects of the statute, there is sufficient information at this time for taxpayers to execute on complete Opportunity Zone transactions (setting up an Opportunity Fund, seeding it with a realized capital gain, and deploying the Opportunity Fund's capital into Qualified Opportunity Zone Property.) It is imperative that taxpayers with capital gain seeking preferential tax treatment act quickly to invest the capital gain into an Opportunity Fund, as the investment must be made within 180 days from when the capital gain is realized. ———————————————
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