The United States Treasury Department released on Wednesday long-awaited new proposed regulations (“New Regulations”) to the Opportunity Zone Program, a tax incentive program created by the Tax Cuts and Jobs Act of 2017. The Opportunity Zone Program was designed to increase investment in certain economically distressed communities designated as “Opportunity Zones” by providing tax incentives to investors that reinvest gains from the sale or exchange of their capital assets into “Qualified Opportunity Funds,” which deploy capital (i.e., proceeds from the sale or exchange of capital assets) into qualified development projects or businesses located in those Opportunity Zones. While the incentives associated with the Opportunity Zone Program could prove to be significant, a substantial amount of uncertainty surrounded the Program and, more importantly, its practical implementation and eventual impacts; as a result, many developers and investors have been anxiously awaiting further guidance in the form of additional regulations prior to giving further consideration to the Opportunity Zone Program.

With the release of the New Regulations (in sum, 169 pages of additional guidance), it may be that interested parties have finally obtained the clarity on the Opportunity Zone Program that was needed. The New Regulations, among other things, clarify questions relating to:

  1. How inventory in transit will be considered with respect to determining whether it is located in an Opportunity Zone;
  2. The length of time Qualified Opportunity Funds have to reinvest any proceeds from the sale of Qualified Opportunity Zone Property into new qualifying investments in order to preserve tax benefits associated with the program; and
  3. Events that would trigger inclusion of the gain deferred from the sale or exchange of capital assets.

In light of the above, and due to the high expectations relative to the Opportunity Zone Program, increased activity – potentially including substantial investment into Qualified Opportunity Funds and the selection of qualified Opportunity Zone projects – can be expected. Developers and investors evaluating the incentives from the Opportunity Zone Program should promptly direct their attention to the New Regulations, particularly because investments must be made prior to the end of the 2019 calendar year to ensure the investors are eligible to receive the full range of benefits associated with the Opportunity Zone Program.