IRS Extends Opportunity Zone Deadlines
Date Posted: June 11, 2020
Posted In: News,
From The National Law Review: In response to the COVID-19 pandemic, IRS Notice 2020-39 extends several deadlines relating to the opportunity zone program and provides welcome relief for investors and qualified opportunity funds (QOFs).
In December 2017, Congress enacted an attractive tax incentive program to promote long-term investments in economically distressed communities designated as opportunity zones. Designated opportunity zones exist in every state and represent over 10 percent of the land mass in the United States, including nearly all of Puerto Rico.
A taxpayer may realize the tax benefits of the opportunity zone program by investing up to the amount of any eligible capital gain in a QOF during the 180-day period beginning on the date the capital gain would have been recognized by the taxpayer. The QOF, in turn, invests in qualified opportunity zone property, which includes an investment in the equity of a qualified opportunity zone business.
Specifically, Section 1400Z-2 of the Internal Revenue Code provides the following tax benefits:
- Initial Gain Deferral – A taxpayer may elect to defer recognition of capital gains from other transactions to the extent the gain amount is invested in a QOF within the 180-day period beginning on the date the capital gain would been recognized by the taxpayer. The gain is generally deferred until earlier of: i) the date on which the QOF investment is sold or exchanged (or otherwise subject to an inclusion event), or ii) December 31, 2026.
- Partial Reduction in Deferred Gain – For investments in QOFs made after December 31, 2019, and before December 31, 2021, a taxpayer may permanently exclude from income 10 percent of the deferred gain if the QOF investment is held at least five years.
- QOF Gain Exclusion – If a taxpayer holds a QOF investment for at least 10 years, the taxpayer may generally elect to exclude from income any post-acquisition gain realized from the sale or other disposition of the QOF investment.
Deadline Extensions
Notice 2020-39 extends the following deadlines relating to the opportunity zone program:
180-Day Investment Period Extended to December 31, 2020
In Notice 2020-23, the IRS previously extended the 180-day investment period to July 15, 2020, if the last day of the 180-day investment period would have ended on or after April 1, 2020, and before July 15, 2020. Notice 2020-39 further extends that investment period until December 31, 2020, if the last day of the 180-day investment period would have ended on or after April 1, 2020, and before December 31, 2020.