The U.S. Treasury Department ("Treasury") clarified the Opportunity Zone tax incentive through a second set of proposed regulations.
As previously covered, the tax incentive is intended to encourage investments in economically distressed communities by allowing taxpayers to defer capital gains tax if they reinvest within 180 days in "qualified opportunity funds" ("QOFs"). QOFs are generally required to maintain at least 90 percent of their assets in "qualifying opportunity zone property."
This new proposal would update portions of the October 2018 proposed regulations under section 1400Z-2 to address, among other things:
- the definition of "substantially all";
- transactions that could "trigger the inclusion of gain that a taxpayer has elected to defer under section 1400Z-2";
- the timing and amount of the deferred gain;
- the leased property used by a qualifying opportunity zone business;
- qualifying opportunity zone business property in a qualifying opportunity zone;
- the sourcing of gross income to qualifying opportunity zone businesses; and
- the "reasonable period" for a QOF to reinvest profits from the sale of a qualified asset without penalty.
Comments on the proposal must be received by July 1, 2019.
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