The IRS and Treasury Department released their first set of proposed regulations on October 19, 2018, to clarify and provide guidance regarding the implementation of the Qualified Opportunity Zone program contained in the Tax Cuts and Jobs Act.
The Qualified Opportunity Zone program is intended to spur investment in certain economically-distressed communities that have been designated as “Opportunity Zones.” Investments made in accordance with the Qualified Opportunity Zone program are eligible for preferential tax treatment, including a deferral of tax on capital gains invested, a potential step-up in basis for the capital gains invested and a potential permanent exclusion from taxable income of capital gains accrued following an appropriate investment in an opportunity fund.
The proposed regulations provided guidance and clarification regarding the following:
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The tax attributes of a deferred gain are preserved through the deferral period and are taken into account by the taxpayer when the gain is recognized (either in 2027 or on the date the taxpayer sells their interest in the QOZ, if earlier than December 31, 2026).
The IRS and Treasury Department continue to work on additional regulations, which are anticipated prior to the end of the year. Nelson Mullins is further analyzing and monitoring this rapidly-evolving area of law and will provide more detailed analysis shortly, along with additional updates as they develop.