Menu

Opportunity Zones

Qualified Opportunity (Zone) Funds

The Economic Opportunity Zones program was created by the Tax Cuts and Jobs Act (TCJA) in December of 2017 to incentivize the private sector to invest long term in qualified low-income communities throughout the United States in order to spur economic development and job creation. The program seeks to utilize a portion of the trillions of dollars of unrealized capital gains (in the stock market and mutual funds alone) for development in these designated areas.

Taxpayers can roll their gains into these new Qualified Opportunity Funds in exchange for potentially significant tax benefits. Investors in Qualified Opportunity Funds can defer the tax on the gains from the sale of assets rolled into the funds and, depending on how long they maintain the investments in such funds, they may receive an increase to their basis and tax free treatment on additional gains earned from funds invested in the fund.

Qualified Opportunity Funds can be set up as either corporations or partnerships and will generally need to hold at least 90% of their assets in Qualified Opportunity Zone Property acquired after December 31, 2017. To become a Qualified Opportunity Fund, an eligible taxpayer will self certify. No approval or action by the IRS will be required. To self-certify, a taxpayer will merely complete a form and attach that form to their timely filed federal income tax return for the taxable year.

Opportunity Zones present a significant new opportunity both for investors as well as developers and business owners. We will continue to monitor this program and provide guidance and insight as it becomes available.

The information contained in this article is for general guidance on the subject matter.  It should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisors.  You should not make any decisions or take any action based on the information in this article.  Please refer to the Terms and Conditions section of this web site.

If an investor holds the gain rolled over in a QOF for at least 5 years, then the basis of such investment will be increased by 10% of the amount of the gain deferred. If that investment is held by the taxpayer for at least 7 years, the basis is increased by an additional 5% of the amount of the deferred gain. If the investor is still holding the investment in the QOF on 12/31/26 the original gain deferred (reduced for any increase in basis related to holding periods above) would then need to be recognized for tax purposes. If that investment is held for a period of at least 10 years, the basis of the investment in the QOF can be stepped-up to the fair market value on the date of disposal thus making all of the appreciation on the investment in the QOF tax-free!

Example:

Ted realizes a gain of $5,000,000 from the sale of property on July 1, 2018. Reinvesting the gain of $5,000,000 into a QOF by 12/31/18 will allow Ted to defer the taxable recognition of that gain. If Ted leaves the money in the QOF for 5 years he will increase the basis of his investment by $500,000 (10% of the $5,000,000 deferred gain). If he leaves the money in for 7 years he will increase the basis of his investment by a cumulative $750,000 (15% of the $5,000,000 deferred gain). If he is still invested in the QOF on 12/31/26 he will recognize taxable gain in 2026 of $4,250,000 (the original gain reduced by the basis increase). If he leaves the money in for 10 years and then sells his investment for a fair market value of $20,000.000, his basis in the investment is equal to the fair market value of $20,000,000 resulting in zero additional taxable gain.

Where the taxpayer invests both gains and other cash into a QOF, the Act specifically states that the investment will be treated as two separate investments of which only the gain proceeds would be eligible for the basis increases and the 10 year gain exclusion.

The information contained in this article is for general guidance on the subject matter.  It should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisors.  You should not make any decisions or take any action based on the information in this article.  Please refer to the Terms and Conditions section of this web site.

For a map of all designated QOZs go to:
https://www.cims.cdfifund.gov/preparation/?config=config_nmtc.xml

To view all designated QOZs on the map, click on the “Layers” tab on the menu on the right hand side of the screen. Select “Opportunity Zone Tract” and unselect “2011-2015 LIC Census Tract,” You can then zoom in to a specific area on the map. Designated QOZs will appear in blue.

For maps of all NYS designated QOZs by region go to:
https://esd.ny.gov/opportunity-zones

In order to qualify as a QOF, an investment vehicle:

  • Must be organized as a corporation or partnership for the purpose of investing in Qualified Opportunity Zone Property (QOZ), and
  • 90% of its assets must be QOZ property determined by the average of the percentage of QOZ property held in the fund as measured on the last day of the first six-month period of the taxable year of the fund and on the last day of the taxable year of the fund.
  • While there was initial uncertainty as to how certification as a QOF would be established, the IRS has issued guidance that eligibility will be established through self-certification. The fund will attach a form to its timely filed federal tax return, including extensions.

The information contained in this article is for general guidance on the subject matter.  It should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisors.  You should not make any decisions or take any action based on the information in this article.  Please refer to the Terms and Conditions section of this web site.

QOZ property is defined as property which is: (1) QOZ stock, (2) a QOZ partnership interest or (3) QOZ business property.

  1. QOZ stock is stock in a domestic corporation that is acquired by the QOF after December 31, 2017 in exchange solely for cash. The corporation must be in a QOZ business at the time the stock was acquired if not a newly formed corporation with the intent on being a QOZ business and during substantially all of the stock’s holding period the corporation qualified as a QOZ business.

  2. A QOZ partnership interest is a capital or profits interest in a domestic partnership acquired by the QOF after December 31, 2017 from the partnership solely in exchange for cash. The partnership must be in a QOZ business at the time the partnership was acquired if not a newly formed partnership with the intent on being a QOZ business and during substantially all of the partnership’s holding period the partnership qualified as a QOZ business.

  3. QOZ business property is tangible personal property used in a trade or business acquired by the QOF by purchase after December 31, 2017. The original use of the property must start with the QOF or the QOF must substantially improve the property. Property is substantially improved by the QOF if the additions to the basis during any 30-month period beginning after the date of acquisition by the QOF exceed the adjusted basis of the property at the beginning of that 30-month period. As an example, a property acquired within a QOZ for $1 million would need to be improved by an amount in excess of $1 million within a 30-month period to be considered substantially improved.

  4. Both the QOZ stock and QOZ partnership interest require that the acquired or newly created entity be a QOZ business. A QOZ business is one in which substantially all of the tangible property owned or leased by the taxpayer is QOZ business property; at least 50% of the gross income is derived from the active conduct of the trade or business; a substantial portion of any intangible property is used in the active conduct of the trade or business; less than 5% of the average of the aggregate unadjusted bases of the property is attributable to nonqualified financial property; and business is not a specifically excluded “sin” business (i.e., golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other facilities used for gambling, or any store where the principal business is the sale of alcoholic beverages for consumption off premises).

If a QOF fails to meet the 90% asset test it will be subject to a penalty for each month that it fails to meet the test. There is no penalty imposed where the QOF’s failure to meet the 90% asset test requirement can be shown to be due to reasonable cause.

The information contained in this article is for general guidance on the subject matter.  It should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisors.  You should not make any decisions or take any action based on the information in this article.  Please refer to the Terms and Conditions section of this web site.

There are two important advantages of investing in a QOZ Fund as opposed to entering into a Section 1031 exchange:

  • QOF Investments Require Less Investment to Defer Tax– To defer the tax on a gain, only the amount of the gain is rolled into a QOF within 180 days of the sale or exchange. The balance can be used elsewhere. 
    A Section 1031 exchange requires the entire value of the original property be reinvested into a new property in order to defer the tax on the gain. Section 1031 exchanges have a 45-day identification period and a 180 day window to complete the exchange.
    • Example: 
      Ted has a building with a value of $8,000,000 and has basis of $5,000,000.  The sale of the building would trigger $3,000,000 of taxable gain for Ted. 

      To defer the tax through a QOF Ted only needs to invest the $3,000,000 gain into a QOZ Fund within 180 days.  There are no restrictions on what the taxpayer does with the remaining proceeds of $5,000,000.

      To defer tax on the entire $3,000,000 gain in a Section 1031 exchange, Ted would need to roll the entire $8,000,000 into a property that meets the 45 and 180 day requirements.
  • Less Restrictions on Type of Gains Invested in QOF– The new QOZ law places far less restrictions on the type of gain eligible for deferment.  It only requires that the capital gain stem from a sale or exchange to an unrelated person.  Real estate, personal property, intangibles assets, and virtually any other capital asset should qualify.  In contrast, under the TCJA, eligibility for Section 1031 exchange treatment is now restricted to gains from the sale of real estate only.
The information contained in this article is for general guidance on the subject matter.  It should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisors.  You should not make any decisions or take any action based on the information in this article.  Please refer to the Terms and Conditions section of this web site.

News

  • New York Decouples from Certain Opportunity Zone Provisions August 20, 2021

    Enacted as part of the Tax Cuts and Jobs Act, Opportunity Zones were created as a tax-incentivized stimulus for investments in underserved communities throughout the United States.

  • Anchin in the News
    How the Biden Administration’s Proposed Tax Plan Could Affect Your Real Estate BusinessAugust 9, 2021

    There’s no telling what policies from President Biden’s new tax plan will pass through Congress, but what we do know is that there are some key items you should be aware of if your business is in the real estate industry.

  • Anchin in the News
    President Biden’s Tax Proposal and “The Perfect Storm” - What it means for real estate August 3, 2021

    In the movie, The Perfect Storm, based on a true story, the captain of the commercial fishing vessel, the Andrea Gail, made the fateful decision to head to the Flemish Cap where he expected his luck would improve. He was right—the catch was great—and wrong—there was a perfect storm straight ahead. He attempted to ride through it, however, two colliding weather fronts and a strong hurricane were more than the Andrea Gail could weather, and the entire crew was lost at sea.

  • Anchin in the News
    Interest in Opportunity Zones Peaks as Higher Rates LoomJuly 27, 2021

    The real possibility of higher capital gains rates has fueled interest by investors in opportunity zone funds.

    While Code Section 1400Z, providing for the funds, was slipped into the Tax Cuts and Jobs Act late in the legislative process and with little fanfare, it quickly became popular with investment advisors.

  • Anchin in the News
    Planning Ahead: Expected Changes for the Real Estate Industry July 15, 2021

    The Trump Administration enacted one of the largest changes to the tax code when it passed the Tax Cuts and Jobs of 2017 (“TCJA”), which contained various provisions that resulted in significant benefits to the real estate industry, such as the pass-through deduction and the extension of bonus depreciation, to name a few. The question now is, how will this, and other long-standing federal policy norms that the real estate industry relies on to do business, all change under the Biden Administration?

  • Anchin in the News
    ‘Totally Inadequate’: CRE Tax Experts Say City Underestimating Extent Of FalloutJuly 2, 2021

    New York City slashed property values this year, drastically reducing tax obligations for many commercial landlords across the city. But even with assessments down by more than 20% in some cases, some owners say the reductions are not nearly enough relief, given the circumstances, and are squaring up to fight the city with greater force than ever before.

  • Anchin in the News
    Business & Finance AwardsJune 30, 2021

    Robert S. Gilman, CPA, CGMA, is an accounting and audit partner at Anchin and co-leader of the firm’s real estate group. He has extensive experience serving real estate owners, developers, and operators in both the commercial and residential sectors. Gilman advises his clients on day-today operations, tax saving opportunities, and transactional support that includes due diligence on the acquisition and disposition of real estate, 1031 exchanges, and opportunity zones. His experience extends to tax structuring on deals, securing financing, reviewing, and analyzing operating agreements and assisting with client investor relations for both domestic and international investors. Gilman also advises clients on financial and estate planning, budgeting, tax planning, and cash flow strategies. Many of his clients’ projects are built from the ground up and require intensive reviews of construction and ancillary costs. He also consults on compliance, accounting, and tax issues that impact the real estate industry.

  • Anchin in the News
    NYC Real Estate Biz is Fighting Bevy of New Taxes, RegulationsJune 15, 2021

    The real estate industry is reeling in the face of new legislation, extended eviction moratoriums, environmental regulation and higher taxes. Now, trade organization and industry leaders vow to fight back.Most recently, industry executives are warning that the Biden administration’s plans to hike the tax on long term capital gains above $1 million from 20% to the top bracket would result in a top bracket rate of 43.4%. In late May, the administration also revealed that the capital gains tax hike would be retroactively applied to assets sold after April 2021. 

  • Anchin Alert
    Can You Benefit from New Jersey’s New Emerge Program?June 9, 2021

    On January 7, 2021, New Jersey passed the Economic Recovery Act of 2020 (the “Act”), which contains a comprehensive recovery package addressing the ongoing economic impact of the COVID-19 pandemic. Specifically, the Act includes over 15 different economic development programs incentivizing job creation, capital investment and community revitalization. Recently, the New Jersey Economic Development Authority (“NJEDA”) approved details regarding the Act’s new Emerge Program (the “Program”), a jobs-based tax credit program for businesses that invest private capital in the state and target priority industries. These tax credits are available for up to seven years.

  • Anchin in the News
    Biden Tax Proposal Would Squeeze Apartment-Building OwnersMay 11, 2021

    The Biden proposal has yet to become part of a bill and passed by Congress. But property investors already view it as the latest threat to their business after the pandemic undercut many of the biggest real-estate categories. Widespread work-from-home policies have reduced office demand while travel restrictions have hurt hotel owners.

  • Anchin in the News
    Best Bosses 2021April 5, 2021

    MARC WIEDER & ROBERT GILMAN Anchin, Block & Anchin As partners and co-leaders of the real estate practice group at Anchin, Block & Anchin, Marc Wieder and Robert Gilman lead a 36-member team that represents some of the biggest players in commercial real estate on everything from transactional guidance and 1031 exchanges to advisory on tax strategy to cash flow analysis. The duo has an impressive reputation among both clients and colleagues.

  • Anchin in the News
    Want Commercial Property Tax Relief? Don't Hold Your BreathMarch 28, 2021

    Economic slumps traditionally set off battles between local governments trying to make up lost revenue by holding the line on property taxes and property owners trying to cut their taxes to be more in line with their diminished bottom lines.

    For many commercial property owners, the pandemic-inspired recession has set that dynamic in play once again but with some new twists. For one thing, not all owners have had a hard time, such as most industrial owners. More importantly, tax experts say the prospect of a relatively short downturn might give taxing authorities the upper hand.

  • Anchin in the News
    Groups See Target on 1031 ExchangesMarch 26, 2021

    Concern is mounting that the Biden Administration’s next policy package could eliminate a crucial tax break for commercial real estate owners, which could translate into lower transaction volumes and demand for lending.

  • Anchin in the News
    Anchin’s Real Estate Group’s Robert Gilman and Marc Wieder Named to Crain’s New York’s 2021 Most Notable in Real EstateFebruary 2, 2021

    NEW YORK--()--Anchin, Block & Anchin LLP (“Anchin”), a leading accounting, tax and advisory firm, today announced Robert Gilman and Marc Wieder, co-leaders of the Real Estate Group, have been recognized on Crain’s New York’s Notables in Real Estate list for 2021. The award honors real estate executives who have significantly impacted the New York City real estate industry, and celebrates their professional, civic and philanthropic achievements.

  • Anchin in the News
    How Class C Apartment Residents are Getting ByDecember 29, 2020

    The pandemic’s impact on apartment dwellers hasn’t been uniform.

  • Anchin in the News
    The Nitty Gritty on Federal Rent ReliefDecember 22, 2020

    As the multifamily sector welcomed the inclusion of $25 billion in rental assistance in the federal relief package, it rushed to decipher the 5,000-page bill.

  • Anchin in the News
    Multifamily Beats the OddsNovember 18, 2020

    While hotels, retail and offices sink, the multifamily sector is sailing along.

  • Anchin in the News
    City Landlords' Biggest Property Tax Hurdle Still to ComeAugust 6, 2020

    Property owners have been pleading with city and state officials to offer tax relief ahead of the July 1 deadline amid waves of rent nonpayment from tenants and empty properties. Lawsuits between tenants and their landlords are clogging up the courts, and the future of retail remains murky. 

    Still, landlords have been putting aside money for taxes for months and collecting enough rents over the course of the pandemic to foot their July 1 property tax bill, said Robert Gilman, head of accounting firm Anchin, Block & Anchin's real estate practice.

  • Anchin in the News
    Industry Executives Take Long View on COVID RecoveryJuly 17, 2020

    The coronavirus pandemic is likely to infect the city’s real estate sector well into next year, according to a new survey of C-Suite executives.

  • Anchin in the News
    20 Things To Know About the New Tax DeadlineJuly 2, 2020

    In response to the coronavirus pandemic, the Internal Revenue Service has extended the deadline to file and pay any taxes owed from the original date of April 15 to July 15.

    everything you need to know." data-reactid="18">If you’re planning on taking advantage of the new deadline, here’s everything you need to know.

  • Anchin in the News
    Rebuilding Your Business in the Face of COVID-19 June 25, 2020

    Rebuilding your business in the face of COVID-19

  • Anchin in the News
    Owners Call On Cuomo to Scrap RGB After It Delivers Another Rent FreezeJune 18, 2020

    The Real Estate Board of New York (REBNY) is calling on the State to scrap the city’s Rent Guidelines Board after it voted to freeze rents for one million New Yorkers.

  • Anchin Alert
    What You Need to Know about Additional Opportunity Zone Relief Available due to COVID-19 PandemicJune 5, 2020

    Qualified Opportunity Funds (“QOF”) and their investors have been working diligently to try and meet certain time-sensitive deadlines in order to comply with various Opportunity Zone rules. Due to the COVID-19 pandemic and the quarantine restrictions instituted by local governments, meeting these deadlines has been challenging, if not impossible. The Internal Revenue Service has released Notice 2020-39 (“the Notice”) providing much-needed relief for QOFs and their investors. The Notice provides relief for the 180 day investment requirement for QOF Investors, the 90 percent investment standard for QOFs, and the 30 month substantial improvement period. The Notice also confirms the 24-month extension of the working capital safe harbor and the 12-month extension for QOFs to reinvest certain proceeds.

  • Anchin in the News
    Bracing for More Job Losses, Looking Toward Better DaysJune 4, 2020

    As tomorrow’s U.S. unemployment numbers are predicted to hit at least 20 percent due to the COVID-19 shutdowns, economists and commercial real estate experts say there will be post-pandemic changes on the commercial real estate landscape during the slow road to recovery.

  • Anchin in the News
    Anchin Eyes Impact of Lower Than Expected Rents on Valuations, ProfitabilityJune 4, 2020

    Anchin, Block & Anchin is talking with its clients about the impact that potential declines in office rental rates could have on commercial real estate valuations and profitability. The question is an important one for real estate fund managers and other institutional-backed capital focus on the office market, which has traditionally been a core asset class fo real estate fund managers and other institutional-backed capital focus on he office market, which has traditionally been a core asset class for investment, noted Rob Gilman, partner.

  • Anchin in the News
    Questions New York's CRE Companies Have for Their AccountantsMay 20, 2020

    NEW YORK CITY—The pandemic has caused a level of economic disruption never seen before. Not surprisingly, real estate companies have many questions for the professionals that they rely on, such as financial advisors and accountants. Marc Wieder, an accounting and audit partner at the real estate group at Anchin, Block and Anchin, one of North America’s largest public accounting firms, has been fielding queries from the firm’s New York’s owners, developers, fund managers, agents and brokers, since day one.

  • Anchin in the News
    Coronavirus PPP Exclusion Puts Landlords in Financial JeopardyMay 20, 2020

    While lawmakers provided aid to small businesses across the country through their multitrillion-dollar stimulus legislation, landlords have been unable to apply for funding – leaving some facing serious financial challenges.

  • Anchin in the News
    19 Things To Know About the New Tax DeadlineMay 4, 2020

    In response to the coronavirus pandemic, the Internal Revenue Service has extended the deadline to file and pay any taxes owed from the original date of April 15 to July 15.

    If you’re planning on taking advantage of the new deadline, here’s everything you need to know.

  • Anchin in the News
    Qualified Opportunity Zones: Where Do We Stand?February 14, 2020

    On December 19, 2019, the Internal Revenue Service (IRS) issued Final Regulations relating to Qualified Opportunity Zones.

  • Anchin in the News
    Opportunity zone investments bring bigger tax breaks if finalized this yearAugust 7, 2019

    Marc Wieder, Co-Leader of the Real Estate Group at Anchin, is hearing from clients about their interest in the tax break.

  • Anchin Alert
    Insights on the Second Set of Qualified Opportunity Zone Regulations April 25, 2019

    The long awaited second set of proposed regulations to the Qualified Opportunity Zone (QOZ) program were released on April 17, 2019. Unfortunately, per the U.S. Treasury, certain sections of the regulations can be relied upon by the taxpayer and some cannot.

  • Real Estate Opportunity Zone
    What Should Businesses Know About Qualified Opportunity Zones? January 15, 2019

    The Tax Cuts and Jobs Act (TCJA) passed last December to overhaul the federal tax code has had a significant impact on the real estate industry. The new law provided tax breaks, but lacked guidance from the IRS, which is hindering some tax planning. Yet amidst these changes, a significant program has been established designed to spur economic activity — and incentivize investors — in areas most in need.

  • Anchin in the News
    Economic Opportunity Zones vs. 1031 ExchangesDecember 14, 2018

    The new Economic Opportunity Zones (EOZ) approved as part of the larger Tax Cuts and Jobs Act (TCJA) has been established to spur economic activity — and incentivize investors — in areas most in need. The program expands businesses’ ability to utilize a portion of the estimated $2.3 trillion of unrealized capital gains. If utilized effectively, this EOZ program could return far-reaching benefits to capital flows and incentivize increased activity for the real estate industry.

  • Anchin Alert
    Opportunity Zone Proposed Regulations Issued: What Was AnsweredOctober 22, 2018

    On October 19, 2018, the Treasury released proposed regulations relating to the Opportunity Zones. These regulations may be relied upon by taxpayers until final regulations are published. The proposed regulations help clarify some of the ambiguities/questions that were inherent in the TCJA with respect to Opportunity Zones. Taxpayers now have guidance to rely on to help start investing in Opportunity Zones.

  • Anchin Alert
    More on the New Qualified Opportunity Zones – Formation and Operation of a FundAugust 9, 2018

    This is the third in a series of alerts by the Anchin Tax Credits and Incentives Team on the new Economic Opportunity Zones program created by the Tax Cuts and Jobs Act (TCJA) in December of 2017 to encourage and incentivize long term investments in qualified low-income communities nationwide.  The program provides a tax incentive for investors to roll their capital gains into a Qualified Opportunity Fund (QOF), that in turn invests in certain economically distressed communities.

  • Anchin Alert
    More on the New Qualified Opportunity Zones – Significant Tax BenefitsJune 13, 2018

    This is the second in a series of alerts on the new Economic Opportunity Zones program created by the Tax Cuts and Jobs Act (TCJA) in December of 2017 to encourage and incentivize long term investments in qualified low-income communities nationwide.  The program provides a tax incentive for investors to roll their capital gains into a Qualified Opportunity Fund (QOF) that in turn invests in economically distressed communities.

  • Anchin Alert
    New Qualified Opportunity (Zone) Funds Offer Significant Tax Incentives for InvestorsMay 18, 2018

    The Economic Opportunity Zones program was created by the Tax Cuts and Jobs Act (TCJA) in December of 2017 to incentivize the private sector to invest long term in qualified low-income communities throughout the United States in order to spur economic development and job creation. The program seeks to utilize a portion of the estimated 2.3 trillion dollars of unrealized capital gains (in the stock market and mutual funds alone) for development in these designated areas.

  • Anchin in the News
    Top Accounting Firms in New Jersey Commercial Real Estate

    Anchin has deep experience working alongside real estate firms and developers of all sizes including many top Real Estate organizations in the industry. Our Real Estate Group advises a broad range of clients including real estate owners, developers, fund managers, agents/brokers and property managers. Our clients operate across all real estate asset classes including commercial, residential (multi-family), industrial, and hospitality.

  • How Does Tax Reform Impact You?

    6 Recent Tax Law Changes That Technology Companies Need to Know07/25/2019 Automatic Extension Available for Making Portability Election1/31/2019 What Should Businesses Know About Qualified Opportunity Zones?1/15/2019 How Can…

Videos

Privacy PolicyTerms and ConditionsContactSite Map   Anchin Accountants & Advisors © 2021 All Rights Reserved.