The Treasury Department has released a new round of proposed regulations governing opportunity zone funds that answers several key questions that have kept potential investors and fund operators on the sidelines.
The latest proposed rules, for example, clarify the requirement that 50% of the gross income of a business must come from an opportunity zone in order to qualify for the intended tax benefits. Would a company operating in the zone but collecting most of its revenue from outside the zone qualify?
The IRS, a bureau of the Treasury, says it would qualify if at least half of the company’s employee hours or wages are sourced in the zone. The location of its customers won’t be relevant.
Another question that was unresolved before Wednesday had to do with the holding period of fund assets to qualify for the maximum tax benefit available after 10 years. Could a fund sell assets in one opportunity fund and deploy them in another without losing the maximum benefit?
Yes, according to the IRS. The tax benefit is tied to the investor’s time in opportunity funds, not the fund’s longevity, provided the investor doesn’t take a distribution.
Opportunity zone funds allow Investors to defer capital gains so long as they are rolled over to a fund within 180 days and to receive a stepped up basis for tax purposes if the investment is held for at least five years. At 10 years, the basis is stepped up to the market price.