Final Opportunity Zone Regulations Released
On December 19, 2019, the U.S. Treasury Department and the IRS issued final regulations (T.D. 9889), which provide much-anticipated guidance on tax-favored qualified opportunity zone investments. The 544-page regulation package generally retains the same approach and structure of the proposed regulations issued in October 2018 and April 2019 (prior Hanson Bridgett analysis available). The final regulations were designed to “make the rules easier to follow and understand,” but also include many taxpayer-favorable changes and additions.
The Treasury Department also posted a series of helpful FAQs highlighting certain differences between the proposed and final regulations. Excerpts from these FAQs are included below:
Sales of business property — The proposed regulations only permitted the amount of an investor's gains from the sale of business property that were greater than the investor's losses from such sales to be invested in QOFs, and required the 180-day investment period to begin on the last day of the investor's tax year. The final regulations allow a taxpayer to invest the entire amount of gains from such sales without regard to losses and change the beginning of the investment period from the end of the year to the date of the sale of each asset.
Aggregation of property for purposes of the substantial improvement test — QOFs and QOZBs can take into account purchased original use assets that otherwise would qualify as qualified opportunity zone business property if the purchased assets:
In certain cases, the final regulations permit a group of two or more buildings located on the same parcel(s) of land to be treated as a single property. In these cases, any additions to the basis of the buildings in the group are aggregated to determine satisfaction of the substantial improvement requirement. Thus, a taxpayer need not increase the basis of each building by 100% as long as the total additions to basis for the group of buildings equals 100% of the initial basis for the group.
Leasing — The final regulations provide several changes to leasing provisions in the proposed regulations:
Working capital safe harbor — The final regulations provide several refinements to the working capital safe harbor:
Hanson Bridgett is still reviewing these new regulations and will provide a comprehensive update soon. Interested taxpayers or their representatives should contact Christopher Karachale or Daren Shaver at Hanson Bridgett with any questions.
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