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Tax Rules Released Regarding Opportunity Zones

by Nena Perry-Brown

When DC nominated its 25 Opportunity Zones (OZs) in April, little was known about how this new system of investment would operate. Now, more light is being shed on how they will work. 

Created as part of this year's massive tax reform bill, OZs are specific low-income census tracts where real estate development is incentivized via pooling of investor resources in Opportunity Funds (OFs), which temporarily shield those investments from taxation. The Treasury Department released guidance on Friday outlining how OZs and OFs will operate. 

One of the main highlights of Friday's guidance is that when an asset (whether tangible property, stock or partnership interest) is sold, the resulting capital gains can be deposited into an Opportunity Fund and will not be taxed until 2026, or until the investment is sold. Individuals, businesses, corporations, estates, trusts and REITs will all be eligible to invest in OFs. After seven years, investments can be discounted up to 15 percent for taxation. Any investment held for ten years will be permanently exempt from taxation. 

Additional details are expected to be announced before the end of the year, including rules on how OZ assets can be bought or sold; final guidance is expected next spring. In the meantime, many entities are already setting up OFs in order to be well-positioned to take advantage of this initiative as quickly as possible. 

This article originally published at https://dc.urbanturf.com/articles/blog/preliminary-rules-released-regarding-opportunity-zones/14597