BOSTON — The Tax Cuts and Jobs Act of 2017 created the Opportunity Zone program which provides real estate investors a new tool to defer gains from sales or exchanges of capital assets by investing those gains in a “Qualified Opportunity Fund.” The program aims to stimulate investment in economically dis-advantaged areas by deferring capital gains recognition for up to seven years if the gain is invested in a Fund, and avoiding capital gains on the appreciation of the Fund investment after a 10-year holding period. While there are unanswered questions regarding the tax consequences of dispositions of property within the Fund itself, the tax benefits are clearly established and offer several distinct advantages over Section 1031 like-kind exchanges.

The new law comes under Section 1400Z of the Internal Revenue Code (“1400Z”). A Fund under 1400Z could be as simple as a two-member LLC or as complex as a large C corporation with hundreds of shareholders. A Fund must be a partnership or corporation for U.S. income tax purposes, has to “self-certify” as a Fund in the first tax year that it in-tends to so qualify, and must hold at least 90 percent of its stock, partnership interests or business assets in Qualified Opportunity Zone (“Zone”) property. Tangible property qualifies if (a) it was purchased after December 31, 2017; (b) the original use of the property commences with the Fund or the Fund “substantially improves” the property, and; (c) during “substantially all” of the Fund’s holding period, “substantially all” of the property’s use is within a Zone.

Originally published on The Real Reporter - November 29th, 2018.