Since Opportunity Zones were implemented with the Tax Cuts and Jobs Act of 2017, real estate investors have been eager to take advantage of one of the most significant tax breaks in recent history. At the same time, a lack of clarification from the Treasury Department (which was delayed even further by the US government shutdown in late 2018) forced investors and developers to hesitate.
However, the much-awaited guidelines and clarification for Opportunity Zone Funds and investments have been released.
To review the previous guidelines for Opportunity Zones as well as how the tax benefits work for investors, read: Investing in Opportunity Zones: A Creative RE Investment?
A Summary of Key Opportunity Zone Guidelines
The 169-page report released seems to bring with it good news for real estate investors, according to an early overview of the second set of guidelines. Investors are allowed to re-invest capital gains into assets in a Qualified Zone Fund within 6 months of the original sale which allows for some flexibility. Assets were outlined to include land and vacant properties. OZ Funds will also be allowed to hold more than 1 asset. This will reduce the risk for the Funds and their investors.
Related: Capital Gains on Rental Property: What Is It and How to Avoid It
The most flexibility comes with the previously outlined 10-year holding period. The new guidelines state that a real estate investor can instead sell assets in Opportunity Zone Funds. Then they will have up to 12 months to re-invest in another qualified asset. This kind of rolling investment strategy is more suitable for many real estate investors who don’t prefer the traditional buy-and-hold investment strategy.
Another previous guideline that left investors with lots of questions was that in order to qualify as an Opportunity Zone Fund, a business would have to generate ½ of its gross income from within a zone. According to the new release, Funds will have 3 options to follow to help them abide by this rule. They will be based on the following:
- Employee hours
- Location of where services are performed
- Location of management
With some of this clarification, real estate investors will start making moves in Opportunity Zones. This was the goal of the second set of guidelines- to ease the hesitation among investors by providing clarity for investment. Steven Mnuchin, the Treasury Secretary, said:
“We are pleased to issue guidance that provides greater flexibility for communities and investors as we continue to encourage investment and development in Opportunity Zones. This incentive will foster economic revitalization, create jobs and spur economic growth that will move these communities forward and create a brighter future.”
Now, the floor is open for public comment on the Opportunity Zones. But if you are ready to start investing in Opportunity Zones, we have already identified the top 21 places for you to get started.
Learn More: 21 Best Opportunity Zones to Invest in Real Estate in the US
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