Alerts and Updates

While sounding almost too good to be true, the rationale of allowing for this type of appreciation treatment is to attempt to incent additional or initial investment in designated low-income areas in an effort to boost economic growth and job creation.

On April 20, 2018, Governor Tom Wolf submitted to U.S. Treasury his list of designated Opportunity Zone sites for Pennsylvania. To date, 18 states and territories—including Arizona, California, Colorado, Georgia, Idaho, Kentucky, Michigan, Mississippi, Nebraska, New Jersey, Oklahoma, South Carolina, South Dakota, Vermont and Wisconsin, as well as American Samoa, Puerto Rico and the U.S. Virgin Islands—have filed for and received approval of their sites. Pennsylvania has now followed suit and submitted its list for approval. Previously, we discussed Opportunity Zones in our Alerts dated March 1 and April 10, 2018.

Designations are approved for 10 years and permit investors to defer tax on any prior gains until no later than December 31, 2026, so long as the gain is reinvested in a Qualified Opportunity Fund. A Qualified Opportunity Fund is an investment vehicle that is organized to make investments in the zones designated above as Qualified Opportunity Zones. Note that while we are awaiting draft regulations, which are anticipated within the next 60 days (i.e., by June 30, 2018), it appears that if investors hold their investments in the Opportunity Fund for at least 10 years, they would be able to increase its basis to that of the fair market value of the investment on the date it is sold. In other words, their appreciation in the value of the asset thereafter would be tax-free.

While sounding almost too good to be true, the rationale of allowing for this type of appreciation treatment is to attempt to incent additional or initial investment in designated low-income areas in an effort to boost economic growth and job creation.

As you may recall, under the Tax Cuts and Jobs Act passed in December 2017, states, the District of Columbia and U.S. possessions were able to nominate low-income areas to be designated as “Qualified Opportunity Zones,” which would be eligible for the noted tax benefit. States were required to submit their lists by March 21 or request a 30-day extension. U.S. Treasury then had 30 days to review and approve of the submitted lists of zones. On April 9, U.S. Treasury approved the aforementioned submittals by the states that submitted nominations by the March 21 deadline. Pennsylvania asked for a 30-day extension and then followed up with its submission on April 20.