The Tax Cuts and Jobs Act passed in December 2017 authorizes the designation of Qualified Opportunity Zones (QOZs). The law provides two distinct tax incentives for investments in a Qualified Opportunity Fund (QOF), which is a fund that generally makes new investments within QOZs:
- Gains from the disposition of any property that are invested in a QOF are temporarily deferred until the earlier of December 31, 2026 and the date of disposition of the QOF investment.
- Gains on the investment in a QOF can be permanently excluded if the investment is held for at least 10 years.
The first step in applying the new law is the designation of QOZs. The governor of each state or possession and the mayor of the District of Columbia may nominate low-income communities (census tracts that satisfy certain poverty or median income requirements) on or before March 21, 2018. That deadline may be extended for 30 days upon request from the governor/mayor. In general, up to 25 percent of the low-income communities in a state may be designated as QOZs. After nomination, the IRS has 30 days to certify a nomination and designate applicable census tracts as QOZs.
Please reach out to Ben, David, or Carey if you have questions about the nomination process in a particular jurisdiction, or how the Qualified Opportunity Zone legislation could apply to a proposed transaction.
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