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New Opportunity Zone Program Provides Taxpayers with Significant Tax Benefits While Supporting Businesses in Low-Income Communities

March 2018

CSG Real Estate & Tax Alert

The Opportunity Zone Program, enacted as part of The Tax Cuts and Jobs Act, is designed to promote and drive investment in low-income communities by allowing taxpayers to defer, and potentially reduce, the recognition of capital gain if the taxpayer invests capital gain proceeds in a Qualified Opportunity Fund within 180 days of the underlying sale and prior to December 31, 2026. Further, if the taxpayer holds the investment in the Qualified Opportunity Fund for at least 10 years, the taxpayer will be allowed to exclude the entire gain on all appreciation of the Qualified Opportunity Fund during the investment period.

Timeline of Opportunity Zone Program Tax Benefits to Taxpayers

The longer a taxpayer holds an investment in a Qualified Opportunity Fund, the greater the tax benefits. If the taxpayer holds the investment for 5 years, the taxpayer will receive a basis adjustment equal to 10% of the original deferred gain. If the taxpayer holds the investment for 7 years, the taxpayer will receive an additional basis adjustment equal to 5% of the original deferred gain. To qualify for the full 15% basis adjustment, the investment in a Qualified Opportunity Fund must be made before December 31, 2019.

The taxpayer will recognize the original deferred gain, as adjusted by any applicable basis adjustments discussed above, upon the earlier of the taxpayer's sale of its interest in the Qualified Opportunity Fund or December 31, 2026.

If the taxpayer holds the investment in the Qualified Opportunity Fund for at least 10 years, the taxpayer will receive a basis adjustment in an amount equal to the fair market value of the investment on the date the investment is sold or exchanged. Thus, the taxpayer will be allowed to exclude the entire gain on any appreciation of the Qualified Opportunity Fund.

The following investment scenario illustrates the operation of the Opportunity Zone Program:

Sale of Original Investment

On July 1, 2018, Taxpayer sells property and realizes gain of $200,000.

Investment Deferred Gain in Qualified Opportunity Fund within 180 Days

On August 1, 2018, Taxpayer reinvests all of the gain in a Qualified Opportunity Fund (investment must be made within 180 days of the original sale). Taxpayer's basis in the Qualified Opportunity Fund investment is $0.

5 Year Holding Period

On August 1, 2023, Taxpayer is entitled to a basis adjustment equal to 10% of the deferred gain ($20,000).

7 Year Holding Period

On August 1, 2025, Taxpayer is entitled to an additional basis adjustment equal to 5% of the deferred gain ($10,000); for a total basis adjustment of 15% ($30,000).

Recognition Event on December 31, 2026

On December 31, 2026, if Taxpayer has not yet sold the investment in the Qualified Opportunity Fund, Taxpayer recognizes capital gain of $170,000 ($200,000 - $30,000 basis adjustments).

If the fair market value of the investment in the Qualified Opportunity Fund is less than the original deferred gain (less the basis adjustments), Taxpayer recognizes capital gains in an amount equal to the then fair market value of the investment.

Holding Period of 10 Years or More

Upon a sale of the investment in the Qualified Opportunity Fund on or after August 1, 2028, the basis in Taxpayer's investment in the Qualified Opportunity Fund will be equal to the fair market value of the investment on the date the investment is sold. Thus, if Taxpayer sells the investment in the Qualified Opportunity Fund for $500,000, the basis in the investment in the Qualified Opportunity Fund will increased to $500,000 and Taxpayer is permitted to exclude the entire $300,000 gain (resulting in a total exclusion of $330,000).

































Qualified Opportunity Zones


The governor of each State has until March 21, 2018 to nominate up to 25% of the total number of eligible low-income community tracts in such State as Qualified Opportunity Zones. Eligible low-income community tracts are determined based on the 2011-2015 American Community Survey 5-Year data from the Census Bureau. The US Treasury Secretary has 30 days thereafter to certify the nominated tracts as Qualified Opportunity Zones. A governor can request a 30 day extension of either or both of the nomination date or the certification date.

New Jersey has 676 eligible low-income community tracts and Governor Murphy may nominate 169 for certification. New York has 2,055 eligible low-income community tracts and Governor Cuomo may nominate 514 for certification. Certain designated community tracts that are not low-income but are contiguous to low-income community tracts are also eligible for nomination. Governor Murphy may nominate 9 non-low-income community tracts, and Governor Cuomo may nominate 26 non-low-income community tracts. As the Opportunity Zone Program is implemented, the number of eligible tracts may be subject to adjustment.

Qualified Opportunity Funds

A Qualified Opportunity Fund is an investment vehicle that holds at least 90% of its assets in Qualified Opportunity Zone Property, which includes Qualified Opportunity Zone Stock, Qualified Opportunity Zone Partnership Interests and Qualified Opportunity Zone Business Property, located in Qualified Opportunity Zones.

Further guidance and clarification regarding the Opportunity Zone Program is expected. The benefits of the Opportunity Zone Program remain clear: (i) significant tax deferral and potential tax savings, (ii) potential wealth transfer opportunities and (iii) promotion of investment in Qualified Opportunity Zones, each of which creates opportunities for investors, real estate developers and business owners.

For more information concerning how the Opportunity Zone Program may benefit you as either an investor, developer or business owner, please contact your CSG attorney or the authors listed below.

Francis J. Giantomasi | Member of the Firm | fgiantomasi@csglaw.com | 973.530.2022

Mitchell S. Berkey | Co-Chair, Real Estate, Development & Land Use Group | mberkey@csglaw.com | 973.530.2085 

Sean M. Aylward | Vice Chair, Corporate & Securities Group | saylward@csglaw.com | 973.530.2105 

Sara Jane West | Associate | sjwest@csglaw.com | 973.530.2127