Contributed By McGuireWoods LLP
The Tax Cuts and Jobs Act brought sweeping changes to federal tax law at the end of 2017. One of the key areas affecting commercial real estate investment was the advent of the Opportunity Zone program, which allows investors to defer the capital gains tax by rolling over such proceeds into a qualified opportunity fund. In turn, the fund mustinvest its capital directly (or indirectly) into business property located in an opportunity zone, which is a designated tract in the US, generally identified as low-income and distressed areas. Depending on how long the investment is held in the fund, the investor may reduce 10%, 15%, and even 100% of the capital gains tax that was owed on the initial capital gains tax.
As the Department of Treasury and Internal Revenue Service continues to roll out regulatory guidance on the new Opportunity Zone program, real estate investors are finding ways to participate in the redevelopment of the areas designated as opportunity zones. Many real estate investors are seeking to invest in a qualified opportunity fund this year to take advantage of the 15% capital gain tax reduction available.