• Qualified Opportunity Zones and Tax Credit Incentives under the Tax Cuts and Jobs Act
  • March 9, 2018
  • The new tax reform legislation, the Tax Cuts and Jobs Act (TCJA), created a significant new economic development tool alongside a meaningful tax deferral and abatement mechanism, “qualified opportunity zones.” The new provision provides a flexible deferral mechanism for short and long term capital gains for current investments in nearly all asset classes. Unlike Section 1031 “like-kind” deferral, qualified opportunity zones will provide: (i) the ability to invest only the gain rather than the full corpus of a current investment, (ii) a broader range of investments eligible for the deferral, (iii) a potential basis step-up of 15 percent or substantially more of the initial deferred amount of investment, and (iv) an opportunity to abate all taxation on capital gains post-investment. This program will provide businesses, projects, and commercial property in eligible low-income census tracts attractive financing and what could amount to a substantial long-term subsidy for economic development. The provision will also provide opportunities for investors, individual and corporate, to defer current capital gains, significantly increase basis in their current investments, and abate all future capital gains on the investment. Sophisticated fund managers should be able to find complex structures and entity planning to optimize return for investors and maximize subsidy for low-income businesses and property investment.