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IRS and Treasury Finalize Opportunity Zone Guidance

The IRS issued final regulations providing details about investment in qualified opportunity zones (QOZ). The final regulations modified and finalized the proposed regulations that were issued on October 28, 2018 and May 1, 2019.

The final regulations provide additional guidance for taxpayers eligible to make an election to temporarily defer the inclusion in gross income of certain eligible gain. The final regulations also address the ability of such taxpayers’ eligibility to increase the basis in their qualifying investment equal to the fair market value of the investment on the date that it is sold, after holding
the equity interest for at least 10 years.

The statute permits the deferral of all or part of a gain that would otherwise be included in income, if corresponding amounts are invested into a qualified opportunity fund (QOF). The gain is deferred until an inclusion event or December 31, 2026, whichever is earlier. The final regulations provide a list of inclusion events and guidance to determine the amount of income that must be included at the time of the inclusion event or December 31, 2026, whichever is earlier.

The final regulations also address the various requirements that must be met to qualify as a QOF, as well as the requirements an entity must meet to qualify as a QOZ business. In order to provide clarity, the final regulations have modified the proposed regulations for QOFs and QOZ businesses to provide additional guidance on how an entity becomes a QOF or QOZ business, and the requirement that a QOF or QOZ business engage in a trade or business. The final regulations retain the general approach of the proposed regulations but provide additional guidance and clarity to the rules regarding QOZ business property.

For more information about this article, please contact our tax professionals at or toll free at 844.4WINDES (844.494.6337).
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