The U.S. Treasury Department and the Internal Revenue Service have issued final regulations implementing the opportunity zone tax incentive.
Opportunity zones, created by the Tax Cuts and Jobs Act, were designed to spur economic development by providing capital gains tax relief for investments in certain low-income areas known as opportunity zones.
The final regulations, which can be read here, modify the proposed regulations that were issued in October 2018 and May 2019.
“Opportunity zones are helping to revitalize communities and create jobs for hardworking Americans,” said Secretary Steven T. Mnuchin. “These regulations…will enhance the flow of capital to new and expanding businesses and create sustained economic growth in communities that have been left behind.”
The statute allows investors to defer all or part of a gain that would otherwise be included in income, if corresponding amounts are invested into a qualified opportunity fund. The gain is deferred until an inclusion event or December 31, 2026, whichever is earlier. The final regulations provide a list of inclusion events and guidance to determine the amount of income that must be included at the time of the inclusion event or December 31, 2026.
The final regulations also address the various requirements that must be met to qualify as a qualified opportunity zone, as well as the requirements an entity must meet to qualify as a qualified opportunity zone business.
They also provide additional guidance on how an entity becomes a qualified opportunity fund or business, and additional clarity to the rules regarding qualified opportunity zone business property.
Related forms, instructions and other information taxpayers need will be made available in January 2020. The FAQ can be read here.