By Bridget Nave, Kevin Fleming and Brett Sayers
As part of the Tax Cuts and Jobs Act of 2017, Congress designated certain Qualified Opportunity Zones to encourage new investment in economically-distressed communities through tax incentives. Opportunity Zone investments are intended to infuse new capital, development and economic growth in such Opportunity Zones. To date, the U.S. Treasury Department has issued two sets of guidance and proposed regulations regarding this developing tax incentive.
Developers and investors alike can reap the benefits of creating and investing in an Opportunity Zone Fund (“QOZ Fund”). Developers can create a QOZ Fund, seek investments from investors who have capital gains that such investors desire to defer, reduce and possibly eliminate with an investment in a QOZ Fund, and develop Qualified Opportunity Zone property. For investors with capital gains, the QOZ Fund investment offers (1) deferral of capital gain for up to 8 years, (2) partial exclusion of deferred gain of up to 15%, and (3) total exclusion of additional gain realized on disposition of an interest in a QOZ Fund.
The QOZ Fund must invest in Qualified Opportunity Zone Property, Qualified Opportunity Zone Stock or Qualified Opportunity Zone Partnership Interests (or LLC interest taxed as a corporation or partnership). To be Qualified Opportunity Zone Stock or Partnership Interests, the respective corporation or partnership must be a Qualified Opportunity Zone Business (“QOZ Business”). A QOZ Business must acquire property used in an opportunity zone after December 31, 2017 from an unrelated party which is first put in use (unless an exception is applicable) or is substantially improved by the QOZ Business. The QOZ Business is subject to restrictions on the ownership of non-qualified property.
A key consideration in creating and funding a QOZ Fund and QOZ Business is the acquisition of the property after December 31, 2017 from an unrelated party. To the extent a developer currently owns real property within the Opportunity Zone, additional considerations and planning is required to qualify as a QOZ Business.
Throughout the St. Louis region, there are many designated Qualified Opportunity Zones which are ready for investment and development. Now is the time for developers and investors to seize the opportunity with QOZ Funds and QOZ Businesses. The attorneys of Blitz, Bardgett and Deutsch, L.C. draw on decades of experience in tax planning, real estate investment and finance, and corporate transactions to advise clients about forming, developing and investing in QOZ Funds and QOZ Businesses.
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