The COVID-19 outbreak has only amplified the need for more housing that is affordable – as over 30 million Americans face unemployment and are struggling to make ends meet. One such way of chipping away at the nation’s supply shortage by incentivizing building in distressed neighborhoods, is through Opportunity Zones. To encourage Congress to focus on this important program, NMHC and NAA joined several industry partners to request that Congress enhance Opportunity Zone tax incentives as a part of future COVID-related economic stimulus legislation. The letter requests that Congress:
- Provide that a 50 percent increase in the basis of a building constitutes a substantial improvement of the property. NMHC has long called on Congress to reduce the requirement that the basis of a property, excluding land, be doubled. Current law’s threshold is in many cases too high and inhibits he rehabilitation of multifamily property.
- Allow opportunity funds to raise capital from all sources, not just gain rolled over from a recently disposed investment. Broadening the source of opportunity zone capital could increase investments in the economically distressed areas the program targets.
- Provide certainty to potential Opportunity Zone investors by codifying that the current-law capital gains tax rate will apply to deferred gains.
- Extend current deadlines for the basis increase and recognition of deferred gain. Under the proposal, investors would have until December 31, 2021, to make an investment into an Opportunity Fund with the ability to receive a full 15 percent basis increase for investments made for seven years. Investors would also not have to recognize deferred capital gain until December 31, 2028.
Enacted as part of tax reform legislation in 2017, Opportunity Zones are designed to provide two types of tax incentives for investments in over 8,700 qualified low-income census tracts nationwide. First, taxpayers may defer capital gains that are reinvested in Opportunity Funds to the earlier of the date an investment in an Opportunity Fund is disposed of or December 31, 2026. Notably, gains deferred for five years are eligible for a 10 percent basis step up, while gains deferred for seven years are eligible for an additional five percent basis step up. Second, post-acquisition capital gains on investments held in Opportunity Funds for at least 10 years may be permanently excluded from income.
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