Opportunity Zones: Taking Advantage of US Emerging Markets
By Tony Constantine, Ciuni & Panichi, Inc.
The United States’ opportunityzone programme encourages investment into what Senator Cory Booker describes as “domestic emerging markets”. The programme is a departure from traditional economic-development programmes. It provides taxpayers with the ability to redeploy unrealised gains for the purpose of revitalising distressed areas without an immediate tax burden.
The programme was signed into law effective for periods after 31 December 2017. The benefits are threefold. First, taxpayers are able to defer a capital gain by reinvesting the gain in a qualifying opportunity zone through a special investment vehicle called an opportunity fund. Second, taxpayers holding the investments for five to seven years can reduce the deferred gain by 10–15% respectively. Third, if the investment is held for ten years, the taxpayer may step up the basis in the opportunity fund investment to fair market value.
Some of the key applications of the programme include direct business investment, real estate development, and an alternative to tax deferred exchanged under Section 1031. There is also a marketing benefit for owners of property located in an opportunity zone.
Proposed regulations were issued on 29 October 2018. Clarity is still needed in areas ranging from its application to large construction projects to how vacant land is treated. More nuanced concepts, such as determination of basis and interplay of debt, also remain unanswered.
The partial government shutdown in January postponed a hearing on the rules until mid-February. As a result of this recent hearing, the Department of the Treasury is expected to issue final guidance covering key components of this provision soon. Despite the uncertainties around the rules, the program has generated significant interest with many investors that are going ahead with their own interpretations of the current rules. Stay tuned for more on this developing topic.
Tony ConstantineCiuni & Panichi, Inc., Beachwood (OH), USA
T: +1 216 831 71 71
Ciuni & Panichi, Inc. has been providing accounting, auditing, and tax services internationally for over 40 years. Firm members also advise clients on financing, mergers and acquisitions, business valuation, financial forecasts and projections, succession planning, and litigation.
Tony Constantine, CPA, has extensive experience in business and individual taxation with specialised expertise in real estate and property tax issues. He is a frequent speaker on tax topics and was named one of the “Top Five to Watch in Finance” in Crain’s Cleveland Business Magazine in 2017
Published: Real Estate, No. 09, Spring 2019 l Photo: Right 3 - stock.adobe.com