The tax reform package enacted in late 2017 included a new provision that could potentially spur multifamily investment in distressed communities. Specifically, the measure establishes Opportunity Zones and provides preferential capital gains tax treatment to qualified investments. NMHC/NAA worked with the sponsors of the provision to have it included in the legislation.
Under the new program, Governors are required to designate qualified low-income census tracts as Opportunity Zones. Up to 25 percent of a state’s qualified census tracts may qualified as Opportunity Zones, with each state having to designate a minimum of 25 Zones. Opportunity Zones must be designated by March 21, though States may request a 30-day extension. The IRS has issued guidance regarding how states may designate the Zones.
Once the Zones are designated, a process already underway, real estate developers and others may establish Opportunity Funds that will be eligible for two tax incentives: First, the Funds may defer capital gains that are reinvested in businesses. Second, the Funds may permanently exclude from income post-acquisition capital gains on investments held for at least 10 years. An Opportunity Fund is a corporation or partnership that holds at least 90 percent of its assets in Opportunity Zone property.