Knowing important Opportunity Zone (OZ) dates are a critical component of getting the most out of any OZ investment. To help you keep up with the myriad list of OZ dates, we’ve put together a list of what to keep an eye on, along with information about how recent regulations have affected the OZ environment.
Potential For A Changing Landscape
Over the last year, there have been several new Opportunity Zone legislation comes out, creating a hazy picture of the OZ legal landscape. Here’s a quick recap of what’s happened in the past year:
- 10/18/2018 — Treasury and IRS issues proposed regulations on the new Opportunity Zone Tax incentive.
- 4/17/2019 — Treasury issues the second set of highly anticipated Opportunity Zones guidance.
- 9/3/2019 — Review of DOC Policy in Opportunity Zones.
- 12/19/2019 — Treasury issues the third set of Opportunity Zone regulations
While the above are only federal-related announcements, many states have been announcing the creation of Opportunity Zones as well. While not regulations, these are new opportunities for investors.
The upshot is that we may not have seen the last of new or changing OZ legislation and rules. While we may not know what any future OZ regulations will bring, we can focus on current regulations in an effort to get the most out of OZ investment opportunities.
Although There Is Some Stability
The second and third round of OZ updates that came out in April and December provided lots of needed details. The second round made clear how to invest in OZs and OZ funds. Additionally, there are better details around the 180-day rule and holding periods for tax deferral. For the 180-day rule, it begins on the day a gain is recognized.
For pass-through entities, such as partnerships, that choose not to defer gains by reinvesting in a QOZ fund, the 180-day period starts at the end of each owner’s tax year.
The third round, which is described as the “final” set of regulations, provides insight into how Opportunity Funds and their eligible subsidiaries can determine qualification and levels on new investment into Qualified Opportunity Zones (QOZs). This set of regulations also clarifies the types of capital gains that qualify, in addition to what gains are exempt from taxation after 10 years.
Given the current stability around OZ regulations, the OZ landscape is attracting a lot of interest. As final regulations clear up outstanding questions and concerns by fund managers, new investment opportunities are becoming available.
OZ Landscape Today
With better clarification after the April and December regulation updates, more firms have jumped into creating QOZ funds. In fact, the National Council of State Housing Agencies fund directory (updated December 17) has over 200 QOZ funds listed. Not to be outdone, as of December 10th, Novogradac is currently tracking 366 funds, which represent $65.77 billion in community development investment capacity.
In addition to funds, we can’t forget the main reason behind OZs, which is to develop economically depressed areas. States will have a big impact on shaping the number and type of OZ opportunities available. The Economic Innovation Group (EIG) provides an in-depth map as to where each of these Opportunity Zones is listed.
There are several important dates to mark down on your calendar. These are related to tax filings, cut-offs for holding periods, and end of the QOZ tax deferral program.
- June 27/28 — final dates to invest capital gains from the previous year. This is a rolling deadline that changes each year. For 2019 capital gains, the deadline is June 27, 2020.
- December 31, 2021 — last day to receive 10% step-up on original gain. First day to invest K-1 gains from 2021.
- December 31, 2026 — Original deferred gain is recognized.
- April 15, 2027 — Original deferred gain taxes are due.
- December 31, 2028 — Expiration of the designation of Qualified Opportunity Zones. Funds may still be active after this date in order to receive the 10-year exclusion. Expiration should not have any effect on receiving this incentive.
Knowing OZ dates is important, but ensuring you have all of your paperwork for tax filing is important, as well. Early gathering of sponsor documents can help you avoid a rush when tax returns come due for March or April. And if you missed the December 31, 2019 deadline, don’t worry too much. Our CEO, David Wieland, breaks down the real impact of the deadline in his piece on the Forbes Real Estate Council. There’s still plenty of time to reap the benefits of Opportunity Zone investing over the next eight years.
Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.
What is a Qualified Opportunity Zone?
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