The Internal Revenue Service has issued final regulations (T.D. 9889) providing details about the tax treatment of investments in qualified opportunity zones (QOZs). This guidance modifies and finalizes proposed regulations that were issued on Oct. 28, 2018, and May 1, 2019.

The Tax Cuts and Jobs Act (TCJA) created the opportunity zone as a new incentive for investment in designated economically disadvantaged areas. Taxpayers can defer all or part of a capital gain that would otherwise be included in current taxable income if they invest those gains into a qualified opportunity fund (QOF) within a certain period of time. The gain is deferred until an inclusion event or Dec. 31, 2026, whichever is earlier.

The final regulations provide guidance on a variety of issues related to the law, including:

  • The types of gains that qualify for investment in a QOF.
  • A list of inclusion events that can trigger a tax liability prior to Dec. 31, 2026.
  • How to calculate the amount of gain at the time of inclusion.
  • Basis step-up rules for QOF investments that are held at least 10 years.
  • Requirements that funds must meet in order to achieve and maintain the QOF designation.

These are just a few highlights selected from over 500 pages of highly technical new IRS guidance on the topic. If you want to learn more about these new IRS regulations or if you have general questions about how opportunity zone investments work, please contact your CRI advisor.