A new opportunity for taxpayers under the new U.S. tax law.
Watch this webcast replay, where leaders from KPMG’s tax practice presented insights on many of the common questions needed to provide clarity and help taxpayers begin investing in Opportunity Zone communities.
The 2017 Tax Act added section 1400Z, which allows for the deferral and partial exclusion of gains from the sale or exchange of any asset that is reinvested in a Qualified Opportunity Fund (Q Fund) that invests in property or businesses located in designated as Qualified Opportunity Zones (QOZ). QOZs generally are low-income areas across the United States, the U.S. territories and the District of Columbia. In addition, any further gains generated through an investment in a Q Fund may be permanently excluded from income if held for at least 10 years.
In this publication, KPMG presents insights on the Opportunity Zones program. Learn more about the potential tax benefits, necessary qualifications based on recent proposed regulations, and the timeframe to act in order to enhance tax savings.
Tax incentive #2
Basis of the Q Fund investment increases by 10 percent of the deferred gain if held for 5 years from the date of reinvestment, and an additional 5 percent after 7 years for a total of 15 percent. The gain must be recognized the earlier of the date that the Q Fund investment is sold or December 31, 2026. Consequently, for Q Fund investments made in 2018 and held for 7 years, the taxpayer will recognize a 15 percent reduction in taxable gain.
Zone qualification & feasibility:
• Determine the applicability and economic/tax benefits of a QOZ investment
• Assemble a business incentive feasibility study
• Prepare a project profile for economic development representatives
• Assist in responding to inquiries from economic development representatives
Implementation & compliance:
• Review for qualification purposes of the gain to be deferred under QOZ rules
• Review Q Fund formation documents for a partnerships or corporations
• Review contribution and partnership agreements for federal and state tax implications
• Assist the Q Fund in acquiring assets to satisfy the Q Fund qualified asset test
• Compliance support with respect to Q Funds
• Audit and advisory services, as needed
• Monitor Q Funds for continuing compliance under the Opportunity Zone requirements
Summary and observations on the proposed QOZ regulations published in the Federal Register.
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OMB’s Office of Information and Regulatory Affairs (OIRA) reported that it has completed review of proposed regulations from the U.S. Treasury Department as guidance for Qualified Opportunity Funds under section 1400Z-2—a provision of the U.S. tax law (Pub. L. No. 115-97, that is also known as the “Tax Cuts and Jobs Act” (TCJA)) enacted in December 2017.
The U.S. Treasury Department and IRS released a version of proposed regulations (REG-120186-18) and a notice of withdrawal of earlier proposed regulations as guidance and to provide additional details about investment in qualified Opportunity Funds under section 1400Z-2.
Listen to a replay of our November 16, 2018 webcast on Opportunity Zones.
OMB’s Office of Information and Regulatory Affairs (OIRA) acknowledged receipt of proposed regulations from the U.S. Treasury Department as guidance for qualified opportunity funds under section 1400Z-2—a provision of the U.S. tax law (Pub. L. No. 115-97, that is also known as the “Tax Cuts and Jobs Act” (TCJA)) that was enacted in December 2017.
Read our summary of the recently proposed regulations for the Opportunity Zone provisions.
Opportunity Zones are the buzz, but are organizations considering pursuing them? See how participants responded when polled to questions about QOFs during our recent TaxWatch Webcast on Opportunity Zones.