The 2017 Tax Cuts and Jobs Act was designed to spur investment in distressed communities (Opportunity Zones) in the Tampa Bay area through tax benefits. In June 2018, communities in the Tampa area were officially designated as qualified Opportunity Zones and will retain their designation for 10 years. Investors have until Dec. 31, 2026 to defer tax on almost any capital gain by making an appropriate investment in a qualified zone, making an election after December 21, 2017, and meeting other requirements.
The rules allow either a partnership or its partners to elect deferral if capital gain is experienced by the partnership. Similar rules apply to other pass-through entities, such as S corporations and their shareholders, and estates and trusts and their beneficiaries.
The amount of a capital gain to be deferred must be invested in a Qualified Opportunity Fund (QOF) in order to qualify for a deferral and must be an entity treated as a partnership or corporation for Federal tax purposes and organized in Florida for the purpose of investing in qualified Tampa Bay opportunity zone property.
The QOF must hold at least 90 percent of its assets in qualified Tampa Bay Opportunity Zone property (investment standard). Tampa Investors who hold their QOF investment for at least 10 years may qualify to increase their basis to the fair market value of the Tampa investment on the date it is sold.
The proposed regulations also provide that if at least 70 percent of the tangible Tampa Bay business property owned or leased by a trade or business is qualified opportunity zone business property in the Tampa Bay area, the requirement that “substantially all” of such tangible business property is qualified opportunity zone business property can be satisfied if other requirements are met. If the tangible property is a building, the proposed regulations provide that “substantial improvement” is measured based only on the basis of the building (not of the underlying land).
The Treasury/IRS issued an additional help to aid Tampa taxpayers participating in the qualified Opportunity Zone incentive via Rev. Rul. 2018-29 which provides guidance for taxpayers on the “original use” requirement for land purchased after 2017 in qualified opportunity zones. The Treasury/IRS also released Form 8996, which investment vehicles will use to self-certify as QOFs.
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The IRS Tax Reform page will also feature updates on the implementation of this and other TCJA provisions.