UPDATE: Opportunity Zone Regulations — Additional Guidance

Click Here for the Original Post from Renat Yusufov

The Treasury Department released a highly anticipated second set of proposed regulations April 17 providing guidance on Opportunity Zone provisions . The guidance provides more flexibility in structuring Opportunity Zone investments and greater clarity on several issues impacting real estate development, affordable housing, and economic development.

Updates:

- Clarify that the original use of tangible property commences on the date such property is placed in service for purposes of depreciation or amortization, and that property previously placed in service within an Opportunity Zone may be disregarded for purposes of the original use requirement if the property has not been utilized or has been vacant for at least five years prior to purchase.

- Clarify that the original use requirement is not applicable to land whether improved or unimproved — and that land does not need to be substantially improved.

- Provide significant new guidance for operating businesses in Opportunity Zones, including additional detail on the requirement that at least 50 percent of the gross income of a qualified Opportunity Zone business is derived from the active conduct of a trade or business in the Opportunity Zone.

- Provides three safe harbors and a facts-and-circumstances test for determining whether an entity meets the 50-percent test.

- Details on transactions that may trigger the inclusion of gain that a taxpayer has elected to defer and the timing and amount of such gain, guidance on the treatment of leased property used by an Opportunity Zone business, and rules on the reasonable period for an Opportunity Fund to reinvest proceeds from the sale of qualifying assets without penalty.