Contributed By McGuireWoods LLP
Congress enacted the Tax Cuts and Jobs Act (TCJA) with the intent of spurring economic growth and development. To this effect, TCJA introduced reduced corporate and individual tax rates, the immediate write-off of business capital expenditures, and new tax incentives under the Opportunity Zone program. The real estate investment landscape is impacted, directly and indirectly, by the overhaul of the tax code, as it presents many new opportunities and pitfalls.
One of the key enactments of TCJA was the Opportunity Zone program, whose objective is to bring new business capital to low-income and distressed communities. Fundamental to the program is the situs of where the businesses are to be located. Accordingly, real estate investors are determining how best they can participate in the program to achieve their tax objectives.
As of the first quarter of 2019, there has been limited regulatory guidance on Opportunity Zones providing precise certainty to taxpayers. While some questions remain open or unclear, there has been significant traction in the Opportunity Zone community, and funds have been forming to take advantage of the capital gains tax deferral and reduction available under the program. Given that the first set of regulatory guidance was taxpayer-friendly, additional guidance of a similar temperature is expected shortly to help fill in the gaps. Guidance is highly anticipated, due to take advantage of the 15% reduction on capital gains tax expiring at the end of 2019.