This week, the New Jersey Division of Taxation issued key guidance on the Opportunity Zone program. The guidance provides that New Jersey will conform to federal tax rules when it comes to the Opportunity Zone tax benefits for gross income and corporation business tax purposes. Accordingly, New Jersey taxpayers will have the opportunity to take advantage of the deferral and reduction of current capital gains, while realizing future capital gains on a Qualified Opportunity Fund investment tax-free. A copy of the guidance can be found here.
In light of the federal government shutdown, the hearing scheduled for January 10 to hear comments on proposed regulations pertaining to the Opportunity Zone program has been cancelled. Click here to read more.
We will keep you apprised of future updates.
As seen on: ROI-NJ.com
By Tom Bergeron
The city of Newark has one of the top locations in the country for investors looking to take advantage of the new Opportunity Zone Program, according to a national study released Thursday morning.
The LOCUS National Opportunity Zone Ranking Report ranked a census tract in downtown Newark in a tie for sixth place among the top Opportunity Zones for Smart Growth Potential, in a ranking of nearly 8,000 tracts.
In addition, a tract in Newark ranked fourth overall in locations deemed to be the top Social Equity and Vulnerable Places with High Smart Growth Potential, meaning the city not only could handle the investment, it would do so without hurting the existing population.
Enough time has passed since the IRS issued its first substantive round of draft regulations and guidance on the federal Opportunity Zone program for certain Qualified Opportunity Fund (“QOF”) managers to begin their capital raise. Some Funds are still working through structuring concepts and documentation, while many others remain on the sidelines in light of the outstanding questions and potential issues that remain for Opportunity Zone investments and projects. While the remaining issues and areas of confusion should not be taken lightly, there is also a bit of a race against the clock element in play due to the December 31, 2019 deadline for an investor to invest in a QOF and receive the maximum level of tax benefits afforded under the program.
On October 19, 2018 the Internal Revenue Service (“IRS”) unveiled its long-awaited guidance on the Opportunity Zone program. The IRS released proposed regulations which have a 60-day notice and comment period before being finalized. Although the regulations may not be finalized, they can be relied on by investors and Fund managers. The IRS also released additional guidance in the form of Revenue Ruling 2018-29, which addresses the “substantial improvement” requirement as applied to real property.
When the Tax Cuts and Jobs Act was being negotiated and considered by Congress at the end of 2017, most practitioners, developers, and business owners were trying to assess its impacts on the mortgage interest limitation, the cap on the state and local tax deduction, 1031 exchanges, immediate expensing of business assets, and other key issues. In that flurry of negotiation and analysis, a powerful federal tax incentive was added to the law that could lead to a vast transfer of wealth while also funding the revitalization of some of the country’s most distressed areas. That new powerful tool is the Opportunity Zone program.
The basic goal of the Opportunity Zone program is to unlock unrealized capital gains being held by companies and individuals and direct that capital towards businesses and projects in certain distressed areas. This is accomplished by incentivizing prospective investors to sell appreciated property and reinvest the gains into qualified Opportunity Zone projects through offering attractive tax incentives—three tax incentives to be precise.
Sills Cummis has learned that later today the Internal Revenue Service will be releasing the long-awaited regulations for the new federal Opportunity Zone program together with a revenue ruling and a key document, the Form 8996 for self-certification by OZ funds. Please return to this site over the weekend and beyond for a continually-updated summary and analysis of the program rules.
The federal opportunity zone program offers the potential for directing new and significant capital investment to some of the country’s areas in need of development. When describing the program, we have referred to it as the next big thing in economic development that could usher in the greatest transfer of wealth this country has seen in decades. However, as federal regulators continue to delay in issuing any meaningful guidance, many investors, fund managers and project developers are waiting on the sidelines until some of the biggest questions and uncertainties surrounding the program get resolved. Furthermore, as more examples are fleshed out and discussed amongst practitioners, investing in a Qualified Opportunity Fund may not be the optimal investment strategy for certain taxpayers depending on the specific facts involved. This is particularly true in the case of taxpayers who own appreciated real estate; for them, 1031 like-kind exchanges may still be more attractive.
The U.S. Department of Treasury’s Community Development Financial Institutions Fund has just released the list of New Jersey’s approved Opportunity Zones. The Opportunity Zones are identified by specific census tracts provided below.
The federal Opportunity Zone program is a new tax incentive designed to direct investor capital into various low-income and distressed areas around the country. On March 21, Governor Murphy submitted New Jersey’s list of eligible census tracts seeking Opportunity Zone designation.
New Opportunities for Urban and Distressed Areas
The newly enacted federal Opportunity Zone program could be a game changer for economic development and tax incentive policy here in New Jersey and across the country. The program provides a new avenue for directing investment into certain urban and distressed areas with significant tax benefits.
The Opportunity Zone program was enacted as part of the recently signed Tax Cuts and Jobs Act and provides an opportunity to defer current capital gains and reduce future gains for investing in certain funds organized to direct capital into businesses and property based in the specified zones. The designated zones are selected by the Governor of each state from certain eligible low-income community census tracts, or those eligible for New Market Tax Credit projects.