In late 2017, a new federal tax provision was enacted that allows investors with capital gains to defer tax on the gains when they invest in a Qualified Opportunity Fund (QOF). The QOF must invest the capital contributions in qualified investments located in “opportunity zones” which are census tracts identified in each state. Several websites, including state-specific sites, contain information about the qualified opportunity zones (census tracts).
Investors with long-term capital gains may find QOFs a useful program for tax deferral and reinvestment. While Treasury Regulations are still in process, the IRS has confirmed that a QOF can self-certify and “no approval or action by the IRS is required.” The IRS is developing a form that will be attached to the investor’s tax return to claim the deferral. The regulations are also expected to address several unanswered questions in the statute concerning administration of the program.
Importantly, investors have only 180 days within which to invest their deferred gain in a QOF. There are several ways in which QOFs are developing, ranging from QOFs formed directly by individual investors that have gains and wish to control their investment in specific opportunity zone projects to managed QOFs that offer equity to investors and in return will invest the capital in qualified projects and manage compliance with the QOF program.