United States: Final Regulations on Opportunity Zones: An In-Depth Guide

Final regulations on opportunity zones were issued by the IRS on December 19, 2019. There are a few major changes and clarifications in the final regulations compared to the prior proposed regulations, a summary of which is below.

In addition, we are happy to provide you an in-depth guide explaining the final regulations, written by Greenberg Glusker Partners, Schuyler (Sky) M. Moore, Warren "Skip" Kessler, and Michael Wiener, which can be downloaded here.

Summary of Major Changes and Clarifications in the Final Regulations

1. The sale of Section 1231 property (property held for more than one year that is used in a trade or business) is now treated the same as the sale of other property. The proposed regulations had treated all sales of Section 1231 property as occurring on the last day of the tax year, and this rule no longer applies.

2. The tax exemption for gain recognized after ten years now applies not only to the sale of interests in a Fund but also to property sold by a Fund or Sub-Fund, including depreciation recapture.

3. The preamble to the final regulations prohibits Opportunity Zone tax benefits if the owner of property in an Opportunity Zone sells the property to a Fund to the extent the owner reinvests the proceeds in the Fund, even for less than a 20% interest in the Fund.

4. The final regulations clarify that gain recognized on receipt of payments under an installment sale qualify for rollover to a Fund based on the date the payments are received, not the date of original sale.

5. The final regulations permit owners of a pass-through entity that recognizes capital gain to start the 180-day rollover period on the due date of the entity’s tax return without regard to extensions.

6. The final regulations expressly permit Funds to operate certain businesses (such as a golf course or massage parlor) that Sub-Funds are not permitted to operate.

7. The final regulations clarify that property being constructed is deemed to be used in an active trade or business even if no income is generated during the construction period.

Contact Greenberg Glusker LLP if you have questions about how these regulations may impact you.

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