Opportunity Zone Business Qualifications

I at least 50 percent of the total gross income of the business is derived from the active conduct of such business. Any fledgling business that can accept funds in 2018 with a credible investment and business plan will not lack for potential investors or investment interest. This article was updated in june 2019.

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As part of the tax reconciliation act of 2017 us congress enacted an incentive to spur economic development and job creation in designated distressed communities or qualified opportunity zones qoz.

Opportunity zone business qualifications. In addition the business needs to satisfy the following requirements. Applying these two definitions together means that during the entire time in which the qof or qoz business owns or leases tangible property at least 63 of the use of that tangible property must be in a qoz. Opportunity zone funds must hold at least 90 percent of their assets in qualified opportunity zone property such as an opportunity zone business.

The qualifications as qualified opportunity zone stock qualified opportunity zone partnership interest and qualified opportunity zone business property encompass investments in new or substantially improved tangible property including commercial buildings equipment and multi family complexes with a common requirement that such investments must be made in qualified opportunity zones. The new guidance clears this large hurdle by creating four distinct tests that can be used to qualify a business under the new 50 test. Thus during at least 90 percent of the time in which the qof or qoz business holds or leases the tangible property at least 70 percent of the use of that property by the qof or qoz business must be in a qoz.

On february 27 2018 the cdfi fund posted an update to their safe harbor eligibility data on their opportunity zones information resource it results in an additional 168 low income communities an additional 1 007 additional eligible contiguous tracts and 72 formerly eligible contiguous tracts that are no longer deemed eligible. Exactly 70 or more of the tangible property owned or leased by the business must be qualified opportunity zone business property qozbp located in a qoz. For a business to qualify the tangible property owned or leased by the business needs to be qualified opportunity zone business property i e acquired after december 31 2017 and meet the original use or substantial improvement test.

This seminar addressed the technical challenges and practical strategies for setting up a qualified opportunity zone business qoz business before the end of 2018. And proposed regulations currently specify that for each taxable year at least 50 percent of the gross income of a qualified opportunity zone business must be derived from the active conduct of a. Total hours worked by employees and independent contractors.

This allows the gain to be deferred until 2026 when it is recognized without regard to whether the qof interest is sold. The 2017 tcja added a new deferral mechanism for capital gains realized from any source. Ii a substantial portion of the intangible property of such entity.

Qozbp is tangible property acquired by a qozb after december 31 2017 and either the original use of such property needs to start with the qualified opportunity fund investment or the fund investment must substantially improve the property. The taxpayer can realize a capital gain and then reinvest only the amount of the gain in a qualified opportunity fund qof within 180 days of the realization event.