Experts: Opportunity zone rules aid developers, investors

After almost two years of ambiguity, the Trump administration this week released final rules governing opportunity zones, a move experts say will lead to increased interest and investment in the program.

“Treasury has cleared up a number of areas, and we now have guidance that taxpayers can rely on that will lead to a lot more investment,” said Michael Novogradac,

managing partner in the San Francisco office of Novogradac & Co. LLP and an original proponent of the zones. “We’re pleased with the overall result, and expect there to be more investment dollars available.”

The opportunity zone program took effect in 2018 but has gone through multiple revisions as issues were raised regarding eligibility and types of investments allowed. The Treasury Department released its final report Thursday.

One big change: The period for investing gains from the sale of business assets, including most business real estate, now begins on the sale date; previously, it was the end of the year in which assets were sold.

To get the full 15 percent gain exclusion, the investment must be made by Tuesday and held for a period of at least 10 years to avoid tax on gain realized from the investment in the OZ fund.

The deferred gain invested in the OZ fund generally must be recognized by Dec. 31, 2026, less the 15 percent or 10 percent gain exclusions, as applicable.

A survey from Novogradac showed that as the end of the year approaches, funds formed to invest in opportunity zones reported having raised nearly $4.5 billion — about 40 percent higher than its last report about 50 days ago.

In terms of investment focus, Novogradac said, residential real estate continues to lead the way, and nearly 50 percent of capital raised is in funds with a national geographic focus.

That remains the case in Miami-Dade. Prominent local opportunity zone projects include The Sol Mia Shoreline mixed-use residential and commercial project in North Miami, and the 18-story Soleste Grand Central in Overtown.

Among Treasury’s other final rulings:

• Only eligible capital gains taxable in the United States may be invested in a qualified opportunity zone fund.

• Nonresident foreign individuals and foreign corporations may make opportunity zone investments with capital gains that are “effectively connected” to a U.S. trade or business.

The entire amount of capital gains from sale of investments can be invested in a qualified fund, as opposed to only amounts greater than losses from those sales.

The department also clarified what types of developments can receive investment from a fund — namely, new construction. Previously it wasn’t clear if that category strictly qualified.