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The Final Regulations for Opportunity Zones Are Here

It’s almost the end of another year, and that means the Internal Revenue Service is announcing a number of updated regulations that will affect next filing season. Last week, the IRS released the final regulations for Qualified Opportunity Zones, which received additional proposed regulations earlier in the year.

As with many of the topics recently being addressed by IRS regulations, Qualified Opportunity Zones were created by the Tax Cuts and Jobs Act. The IRS FAQ page on QOZs notes that they “are designed to spur economic development and job creation in distressed communities.”

While a federally established program, the QOZ process hinges on coordination with individual states: “Localities qualify as opportunity zones if they have been nominated for that designation by the state and that nomination has been certified by the Secretary of the U.S. Treasury via his delegation of authority to the Internal Revenue Service.”

What are the new regulations for qualified opportunity zones?

The IRS press release identifies a number of updates found in the final regulations:

  1. The statute permits the deferral of all or part of a gain that would otherwise be included in income, if corresponding amounts are invested into a qualified opportunity fund (QOF). The gain is deferred until an inclusion event or Dec. 31, 2026, whichever is earlier. The final regulations provide a list of inclusion events.
  2. The final regulations provide guidance to determine the amount of income that must be included at the time of the inclusion event or December 31, 2026.
  3. The final regulations provide additional guidance on how an entity becomes a QOF or QOZ business, and the requirement that a QOF or QOZ business engage in a trade or business.
  4. The final regulations retain the general approach of the proposed regulations but provide additional guidance and clarity to the rules regarding QOZ business property.

Obviously, this does not cover everything found in the full document, which exceeds 500 pages. Whether a client chooses to invest in a QOZ will depend upon a number of factors, including a full understanding of the regulations affecting those opportunities.

Where can I read more about the new regulations?

Unfortunately, the IRS indicates that many resources related to the QOZ final regulations won’t be available until after the new year. In the meantime, they recommend checking out the IRS.gov page on Tax Reform.

That said, you can read the full text of “Investing in Qualified Opportunity Funds” here. Be sure to regularly check the Taxing Subjects blog for future updates on QOZs and more!

Sources: IR-2019-212; “Opportunity Zones Frequently Asked Questions

Ryan Norton

Whether designing superheroes, penciling caricatures, or just doodling, I always knew I was going to earn some sort of art degree while in college. That was my goal before I decided to trade Edgar Degas for Edgar Allan Poe during a Freshman English class. The BA in English soon morphed into a double-major in English and Philosophy, eventually becoming an MA in English. It only makes sense that I learned of a writing opportunity for a local marketing firm while teaching a first-year college English course. Before I knew it, I was writing and editing tax-related articles for Taxing Subjects, and this has been my home since 2014.

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