Tag: Opportunity Zones (OZs)

This week the Real Estate Roundtable provided formal comments regarding opportunity zones to the Treasury Department and the IRS.  The letter encourages Treasury to clarify a number of tax issues that would remove uncertainty for potential investors and opportunity fund managers.  This is the second Roundtable comment letter on opportunity zones, following Treasury’s publication of proposed regulations in October. ( Roundtable Weekly, Oct. 19)

This week the Real Estate Roundtable provided  formal comments  regarding opportunity zones to the Treasury Department and the IRS.

• The October proposed rules provided a strong foundation for opportunity fund formation and investment.  Building on the rules, the Roundtable letter prioritizes five areas where additional guidance from Treasury would accelerate the pooling of capital and job creation in opportunity zones.  The letter recommends that Treasury:

1. Remove barriers to the formation of multi-asset opportunity funds through flexible exit rules;
2. Clarify the circumstances in which land and previously vacant buildings constitute qualified opportunity zone business property;
3. Allow appropriate refinancing of opportunity fund assets and avoid overly restrictive debt-distribution rules;
4. Encourage continued investment in opportunity zones with flexible gain reinvestment, roll-over, and holding period rules at the investor, fund, and business level; and
5. Provide additional protections in the working capital safe harbor and the substantial improvement rules for taxpayers making a good faith effort to comply with opportunity zone requirements.

• “Real estate development and redevelopment is a key component of any region’s economic strength and growth, wrote Roundtable President and CEO Jeffrey D. DeBoer. “The Roundtable foresees opportunity fund investors and fund managers actively partnering with local leaders and entrepreneurs on projects that both drive economic activity and respond to the needs of communities. Additional guidance along the lines described above will help ensure that the opportunity zone incentives fulfill their ambitious objectives.”

• The Treasury Department could issue a second set of proposed regulations on opportunity zones as soon as January, according to Treasury Assistant Secretary David Kautter (Roundtable Weekly, Dec. 14).

• The underlying legislation directs Treasury to report to Congress on opportunity zones’ effectiveness.  The  Roundtable letter encourages Treasury to consider, as part of its reporting, the aggregate impact of opportunity zone investments on the overall health and wellbeing of targeted communities, including the impact on the local tax base, surrounding infrastructure, and their ability to attract and retain employers.

The Roundtable comments are the product of an active Tax Policy Advisory Committee (TPAC) Opportunity Zone Working Group that includes leading real estate developers, owners, investors, lenders, industry organizations, and outside advisors. The TPAC working group will continue to work closely with government officials to help ensure the program fulfills its ambitious objective of stimulating economic development and job creation in low-income communities.

Recent Proposed Treasury Regulations governing the new “Opportunity Zone” investment program – and its potential to spur productive real estate investment in struggling, low-income communities – is the focus of an Oct. 26 GlobeSt.com interview with Real Estate Roundtable President & CEO Jeffrey DeBoer and Roundtable SVP and Counsel Ryan McCormick. 

• In the interview, DeBoer and McCormick provide answers to critical questions regarding the highly anticipated regulatory guidance and its implications for the real estate industry.
• DeBoer notes, “For real estate, the proposed regulations are unquestionably positive. They clarify key technical questions and open issues, and they should allow investments in funds and in underlying projects to go forward. While some important questions remain, we continue to believe that the Opportunity Zone program will be a powerful catalyst for transformational real estate investment in these designated low-income areas.”
• The Treasury in June designated more than 8,700 low-income census tracts in the United States, Puerto Rico, and territories as qualified Opportunity Zones. (IRS Notice 2018-48 and Roundtable Weekly, June 22 and Interactive Map, Economic Innovation Group)
• The Wall Street Journal reported this week that the highly-anticipated guidelines have offered investors greater certainty to begin the process of raising and investing billions of dollars into new real-estate funds targeting opportunity zones.  (WSJ , Oct 23)
• The GlobeSt Q&A also clarifies who can defer gain by investing in an Opportunity Fund; the 180-day time period when investors are required to roll capital gain into a Fund; and how the proposed rules allow a Fund to mobilize capital over a period of nearly three years. 
• McCormick explains in the article : “The proposed rule creates a ‘working capital safe harbor.’ Opportunity Funds have a minimum of 31 months to invest their working capital in qualified opportunity zone property. The longer runway aligns better with the practical realities of real estate investment.”  
• DeBoer also offers clarifications about the “original use” and “substantial improvement” tests of an Opportunity Zone property, noting that they “… are critical elements of the Opportunity Zone program, and they are clarified in important ways in the proposed rules. Keep in mind, Congress wanted to stimulate new capital investment, not simply the transfer of income-producing assets from one owner to another. Therefore, property must either be put to its original use by the fund, or the fund must substantially improve the property. The Opportunity Zone law defines substantial improvement as the doubling of the adjusted tax basis of the property. The regulations provide that the original use and substantial improvement requirements only relate to the structure and not the underlying land.”
• Further clarification about the program is expected.  According to DeBoer, “Some of the most important questions relate to Opportunity Fund transactions and the tax consequences when a fund buys, sells, and/or reinvests in Opportunity Zone property … Treasury and the White House have indicated that additional guidance is forthcoming before the end of the year. The Roundtable will be working with policymakers to ensure the next tranche of guidance and the final rules maximize productive, job-creating investment in Opportunity Zones.”

The Roundtable’s Tax Policy Advisory Committee (TPAC) recently convened a panel on Opportunity Zones that included the tax counsel for Senator Tim Scott (R-SC), the original author and sponsor of Opportunity Zone legislation.  TPAC’s Opportunity Zone Working Group will continue to provide insight into how the industry can help the program fulfill its ambitious objective of stimulating economic development and job creation in low-income communities. (Roundtable Comment Letter, June 28 and Roundtable Weekly, July 20) 

The Treasury Department today released Proposed Regulations giving investors added guidance regarding the new “Opportunity Zone” investment program.  The Real Estate Roundtable’s Tax Policy Advisory Committee (TPAC) Opportunity Zone working group will analyze the much-anticipated regulatory proposal and their consequences for real estate-related jobs and investment.  (IRS proposed rules, Oct. 19)

In late June, The Estate Roundtable provided formal comments to Treasury Department and IRS officials regarding implementation guidance that could maximize real estate investment, capital flows and jobs into newly designated Opportunity Zone communities. (Roundtable Weekly, June 29)

“Real estate development and redevelopment is a key component of any region’s economic strength and growth,” wrote Roundtable President and CEO Jeffrey DeBoer.  “In our view, successful implementation of the Opportunity Zone program requires careful consideration of how the new rules will apply to real estate and real estate investment activities.” 

Congress created Opportunity Zones in the 2017 Tax Cuts and Jobs Act to encourage long-term, capital investment in economically struggling, low-income communities.  Opportunity Funds must invest in tangible business property located in a qualifying zone, which can include real estate, and the tax benefits are tied to the investment holding period.  The capital gain on an Opportunity Fund investment is excluded from tax altogether if the asset is held for 10 years or more.

A new federal “Opportunity Zones” investment program – and its potential to boost job creation, entrepreneurship, and economic development in low-income communities – is the focus of a July 16 GlobeSt.com interview with Real Estate Roundtable President & CEO Jeffrey DeBoer and Roundtable SVP and Counsel Ryan McCormick.  With implementation guidance about the program expected soon from the U.S. Department of the Treasury, the article highlights the major tax considerations and regulatory questions for real estate, many of which are discussed in greater detail in The Roundtable’s June 28 Opportunity Zone comment letter.

Roundtable President & CEO Jeffrey DeBoer, right, and Roundtable SVP and Counsel Ryan McCormick, left, discussed the new federal “Opportunity Zones” investment program in a  July 16 GlobeSt.com interview.

• Last month, the Treasury Department formally designated more than 8,700 low-income census tracts in the United States, Puerto Rico, and territories as qualified Opportunity Zones. (IRS Notice 2018-48 and Roundtable Weekly, June 22)

• DeBoer explained in the GlobeSt interview, “The point of the program is to encourage capital formation and patient, long-term investment in these areas by reducing or eliminating capital gains taxes for taxpayers investing in newly established Opportunity Funds.”

• McCormick told GlobeSt that property in an Opportunity Zone – real estate or otherwise – must be acquired by the fund after Dec. 31, 2017.  He added, “The law delegated many of the key implementation issues to the Treasury Department to resolve. These include: (1) how an Opportunity Fund is certified (2) how quickly must an Opportunity Fund deploy new capital, and (3) when has an existing real estate asset qualified as an eligible investment?”

• A July 13 Wall Street Journal article on Opportunity Zones reported, “Unlike earlier federal efforts to spur economic development in poorer communities, the program takes a free-market approach and isn’t backed with federal spending.”

• House Speaker Paul Ryan (R-WI) on July 12 spoke at length regarding the program before the Economic Club of Washington.  “With these opportunity zones, we are essentially offering private investors a set of incentives. The longer you maintain your investment in these areas, the more tax benefits you receive.  Right now, we have $6 trillion of unrealized capital that can be deployed to help alleviate poverty in distressed communities and improve people’s lives,” Ryan said.

• DeBoer also noted in the GlobeSt interview, “Investors and real estate fund managers are actively in the process of evaluating options, setting up funds, and conducting due diligence.  As time passes and the regulatory regimes takes shape, the pool of Opportunity Fund investors may grow.  We anticipate Treasury will soon issue guidance, hopefully within the next 30 days.”

The Roundtable Tax Policy Advisory Committee (TPAC) recently convened a panel on Opportunity Zones that included the tax counsel for Senator Tim Scott (R-SC), the original author and sponsor of Opportunity Zone legislation.  TPAC’s Opportunity Zone Working Group will continue to provide insight into how the industry can help the program fulfill its ambitious objective of stimulating economic development and job creation. (Roundtable Comment Letter, June 28)

The Real Estate Roundtable on Thursday provided formal comments to Treasury Department and IRS officials regarding implementation guidance that could maximize real estate investment, capital and jobs into newly designated Opportunity Zone communities.  Last week, the Treasury Department formally designated more than 8,700 low-income census tracts in the United States, Puerto Rico, and territories as qualified Opportunity Zones. (IRS Notice 2018-48 and Roundtable Weekly, June 22)

The Real Estate Roundtable provided  formal comments  regarding implementation guidance for newly designated Opportunity Zone communities.

• “Real estate development and redevelopment is a key component of any region’s economic strength and growth,” wrote Roundtable President and CEO Jeffrey DeBoer.  “In our view, successful implementation of the Opportunity Zone program requires careful consideration of how the new rules will apply to real estate and real estate investment activities.” 
• The Roundtable comments focus on: the certification of Opportunity Funds; the deferral or exclusion of gain; and the Opportunity Fund asset test, including questions regarding when real estate improvements constitute a qualified investment.
• Congress created Opportunity Zones in the Tax Cuts and Jobs Act to encourage long-term, capital investment in economically struggling, low-income communities.  Opportunity Funds must invest in tangible business property located in a qualifying zone, which can include real estate, and the tax benefits are tied to the investment holding period.  The capital gain on an Opportunity Fund investment is excluded from tax altogether if the asset is held for 10 years or more.

The Roundtable comments are the product of The Roundtable Tax Policy Advisory Committee (TPAC) Opportunity Zone Working Group.  TPAC recently convened a panel on Opportunity Zones that included the tax counsel for Senator Tim Scott (R-SC), the original author and sponsor of Opportunity Zone legislation.