The Treasury Department and IRS released a second set of Opportunity Zone regulations on April 17 that address many of the issues NMHC and NAA raised in our December letter to IRS.
The proposed Opportunity Zone regulations clarify the following key issues:
- Land itself need not be improved to meet the original use requirement.
- Debt-financed returns of capital that do not exceed a taxpayer’s basis in an Opportunity Fund are not treated as a sale of exchange. In other words, taxpayers can engage in cash-out refinances while still preserving Opportunity Zone tax benefits.
- Property vacant for at least five years is considered original use property. NMHC and NAA had asked that the government deem property vacant for at least one year to be deemed original use property and exempt from requirements to double the basis of acquired property.
- Taxpayers can go beyond the 31-month period to deploy Opportunity Zone capital if a taxpayer is waiting for government action the application for which is completed during the 31-month period.
- Taxpayers have 180 days from the end of a taxpayer’s taxable year to invest so-called 1231 gains into Opportunity Funds
- Real property that straddles an Opportunity Zone is considered Opportunity Zone property if more than half of the cost basis of the property is within the Zone.
Review Treasury’s full guidance here.
NMHC and NAA support the Opportunity Zones program and believe it provides a strong incentive to drive considerable investment in multifamily housing by providing for the deferral of capital gains invested in Opportunity Funds and eliminating tax on certain gains realized from Opportunity Fund investments. However, we continue to advocate for several clarifications and changes to the program. For example, we are seeking modifications that would:
- Make it easier to rehabilitate multifamily properties. We continue to ask Treasury and the IRS to deem property vacant for one year as original use property.
- Extending the 30-month period to substantially improve an acquired property in the case in which a taxpayer is waiting for government action the application for which is completed during the 30-month period.
- Allow taxpayer 180 days following a REIT’s taxable year to invest REIT capital gain dividends into an Opportunity Fund.
- Enabling taxpayers to exit one Opportunity Fund and deposit capital gains into another without losing Opportunity Zone tax benefits.
- Allow Opportunity Funds to sell investments without taxpayers having to recognize gain or the Opportunity Fund having to engage in a 1031 like-kind exchange.
The release of these regulations came just days after HUD announced a Request for Information (RFI) asking for comments on how HUD programs can be improved or modified to benefit Opportunity Zones. HUD Secretary Ben Carson issued this RFI as part of his work on the White House Opportunity Revitalization Council, a council set up to explore ways to more effectively use taxpayer dollars within low-income communities.
Review HUD’s full RFI here.
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- Real Estate Coalition ADS Tax Reform Letter to House Ways and Means Committee
- Senate Finance Committee Task Forces Focus on Expired Tax Provisions
- NMHC and NAA Comment on Ways to Maximize the Positive Impact of Opportunity Zones
- NMHC and NAA HUD Opportunity Zones Comment Letter - June 2019