NMHC/NAA provided the Internal Revenue Service (IRS) with a list of suggested refinements to proposed regulations implementing Opportunity Zones on December 7. As previously reported, the proposed regulations represent a major victory for the multifamily industry and adopt numerous recommendations made by NMHC/NAA as part of a letter and meeting with Treasury Department officials.
In our December 7 comment letter, NMHC/NAA encouraged the Treasury Department and IRS to address a number of issues in final Opportunity Zone regulations. NMHC/NAA recommended that:
- Land itself need not be improved to meet Opportunity Zone’s original use requirement.
- Property vacant for at least a year qualifies as original use property and is, thereby, exempt from a requirement to double basis.
- Debt-financed returns of capital that do not exceed a partner’s basis in an Opportunity Fund are not treated as a sale or exchange.
- Investors can exit Opportunity Fund investments and reinvest without negative consequence to the five-, seven-, and 10-year basis adjustment thresholds so long as proceeds from exiting a Qualified Opportunity Fund are reinvested in another Qualifying Opportunity Fund within 180 days.
- The 31-month period to deploy capital for new construction and the 30-month period to rehabilitate and asset be expanded by up to one year in the case that a state or local government delayed development activity.
- Multiple properties can be held within a single Opportunity Fund.
Background on Opportunity Zones
Opportunity Zones are designed to provide tax incentives for investments in distressed communities. Under the new program, governors have designated approximately 8,800 qualified low-income census tracts nationwide as Opportunity Zones.
Real estate developers and others may establish Opportunity Funds that will be eligible for two tax incentives.
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.
For more information on Opportunity Zones, please visit NMHC’s Opportunity Zones advocacy page.
- 2019 Legislative and Regulatory Advocacy
- Bipartisan Multifamily Depreciation Bill Introduced
- IRS Delays Implementation of New Partnership Tax Forms
- Real Estate Industry Multifamily Depreciation Parity Act Letter to House and Senate – December 2019
- Real Estate Group Letter to IRS Regarding New Partnership Tax Forms – November 2019