The U.S Treasury Department and the IRS yesterday released final regulations (T.D. 9889) under section 1400Z-2, regarding rules for investments in opportunity zones. These regulations finalize rules that were promulgated in two tranches of proposed regulations in October 2018 and May 2019.
Read the text of the final regulations [PDF 1.3 MB] (544 pages)
Section 1400Z-2 relates to capital gains that may be deferred as a result of a taxpayer’s investment in a qualified opportunity fund (QOF) that holds property and operates in a qualified opportunity zone (QOZ). The provision was added to the Code by the 2017 tax reform legislation (Pub. L. No. 115-97 enacted December 22, 2017—and often referred to as the “Tax Cuts and Jobs Act”). Even after two rounds of regulatory guidance from the government, there were fundamental questions about aspects of the program.
The eagerly anticipated final regulations provide clarity around a host of issues that were of critical importance to both potential investors in the program and businesses interested in taking advantage of the incentives provided for operating in QOZs. The final regulations also provide several new rules and expansions of previously provided safe harbors that appear to be favorable in terms of investment, development, and operation of projects in QOZs.
The following are some highlights of the significant provisions in the final regulations. An in-depth discussion of the rules and KPMG’s observations will be published in the near future.
Note that the applicability date of each section of these final regulations is generally tax years beginning after 60 days from the official publication of the regulations in the Federal Register. This means that taxpayers who are, or were, relying on provisions of a section of the proposed regulations for purposes of their 2019 year-end tax planning (e.g., in terms of timing on section 1231 gain amounts) can continue to rely on those rules, assuming they are applied consistently.
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