On Dec. 19, the United States Department of the Treasury released final regulations related to investment in Qualified Opportunity Zones and Qualified Opportunity Funds (544 pages). These highly anticipated regulations and related guidance provide critical information to investors, Qualified Opportunity Funds (QOFs), and project sponsors/operators involved in real estate, venture capital, operating businesses, and project finance in Qualified Opportunity Zones (QOZs). Many provisions of two rounds of prior proposed regulations were finalized or amended, and new provisions and guidance offer further clarity in areas critical for investor evaluation.
The final regulations include the following:
- Investor special elections permitting exclusion of gain from both sales of assets or interests in QOZ businesses (QOZBs) when investment in a QOF is longer than 10 years;
- Clarification that distributions to a QOF investor exceeding the basis for the investor’s QOF interest are inclusion events for the investor, and further explanation and examples of the treatment of debt-financed distributions;
- Allowing the separate investment of gains from each Section 1231 sale or exchange (without year-end netting being required). Also establishing new 180-day investment periods for eligible gains from a Section 1231 disposition (with 2019 investors still being able to use 12/31/19 as a permitted investment date);
- Clarification that leasehold improvements are qualifying QOF property;
- Allowing QOFs to be merged into a single QOF partnership in certain circumstances;
- Expansion of the previous 31-month working capital safe harbor provision (potentially up to 62 months);
- “Original Use” clarification for vacant property.
Read the Full Article and view the entire list of final regulations reported by The National Law Review here.
Learn more about the Opportunity Zone Program and Hatteras Sky here.