Tagopportunity zones

IRS Extends Like-Kind and Qualified Opportunity Zone Deadlines

By: Amanda Wilson

Section 1031 of the Internal Revenue Code allows a taxpayer to sell real property (the relinquished property) and replace it with real property of a like-kind (the replacement property) without recognizing tax on the sale if certain requirements are met. Two of those requirements are that the taxpayer must identify replacement property within 45 days of the sale of the relinquished property and acquire the replacement property within 180 days of the sale of the relinquished property.

Similarly, Section 1400Z-2 of the Internal Revenue Code allows taxpayers several benefits if the taxpayer has capital gains that he or she invests in a qualified opportunity fund within 180 days. These benefits include deferring the capital gains, usually until December 31, 2026, and potentially avoiding any taxable gain on the liquidation of the qualified opportunity fund investment if the investment is held for at least ten years.

These 45-day and 180-day requirements were causing concern for taxpayers given the current state of the country as a result of the coronavirus pandemic. In recognition of this, the Internal Revenue Service issued Notice 2020-23 last night, extending the deadline to July 15, 2020, for several types of returns or other filing obligations which were due to be performed on or after April 1, 2020, and before July 15, 2020.

The notice specifically provides an automatic extension until July 15, 2020, of the Section 1031 45-day and 180-day periods and the Section 1400Z-2 180-day period for any period that would end on or after April 1, 2020, and before July 15, 2020. An extension is not available if the 45-day or 180-day period expired prior to April 1.

This is good news for taxpayers that were struggling to complete their like-kind exchange or opportunity fund investment.

Be sure to visit our Coronavirus (COVID-19) Resource Center page to keep up to date on the latest news.

Considering Making A Qualified Opportunity Zone Investment?

By:  Amanda Wilson

 

Qualified Opportunity Zones are a hot topic in the tax and business world, and are an opportunity that span into almost any business market.  I get questions about them daily.  If you are considering making an investment in property in a qualified opportunity zone, or are simply wondering what an opportunity zone is, I recently presented on this topic.  A copy of the presentation materials can be found here.

IRS Issues Guidance on Qualified Opportunity Zones

By:  Amanda Wilson

The 2017 Tax Cut and Jobs Act included significant new tax benefits for investments in qualified opportunity zones. Specifically, taxpayers can defer tax recognition on capital gains when the gains are reinvested in a qualified opportunity fund, which is a partnership or corporation that invests in qualified opportunity zones. In addition, the gains from the investment in the fund can be permanently eliminated if the investment is held for at least 10 years.

Qualified opportunity zones are a new concept, and tax practitioners and investors have been eagerly awaiting guidance on how these new rules will be implemented. The IRS released its first round of guidance on Friday, in the form of proposed regulations and a revenue ruling. This guidance clarified several important issues. For example, qualified opportunity zone property includes tangible property if the qualified opportunity fund substantially improves tangible property located in a qualified opportunity zone. It was unclear what this meant in the context of property such as a building. Revenue Ruling 2018-29 answers this question by providing that substantial improvement occurs when the cost of the improvements is equal to at least the adjusted basis in the building, rather than requiring the improvements to cost at least the adjusted basis in the building and the underlying land. In addition, the qualified opportunity fund is not required to separately substantially improve the land upon which the building is located.

The proposed regulations also clarify that a qualified opportunity fund does not need to be a newly formed entity, and that only capital gains qualify for this new tax regime. The regulations also clarify that 100% gain elimination (for gains occurring from the investment in the fund) is available if the investment is held for at least ten years, even if the designation of an opportunity zone expires prior to the ten year anniversary of the investment. This last piece of clarification addressed a significant concern of many tax practitioners, as the designation of all of the current opportunity zones expires December 31, 2028. The regulations also provide that taxpayers can generally rely on the proposed regulations at this time.

The regulations leave many questions unanswered for now as the regulations reserved several important issues, including what constitutes the active conduct of a trade or business and . Stay tuned for further developments as additional guidance is issued.

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