The 2nd round of Opportunity Zone legislation addresses concerns, offering investors and communities a glimmer of hope
The original Opportunity Zone legislation lacked a lot of details, and the first round of guidance in October 2018 created more questions than it answered. The much-anticipated second round of guidance was released yesterday, which is timely because the maximum benefit of the legislation requires an Opportunity Zone investment be completed by December 31, 2019. Communities have been cautious because it could exacerbate displacement.
Total dollars paid to employees and independent contractors for services performed within an Opportunity Zone must be at least 50% of the company’s total dollars paid for services performed; This was done through a council of nearly 20 federal agencies called the White House Opportunity and Revitalization Council, which were glued together by a Presidential Executive Order on December 12, 2018, explicitly to eliminate federal bureaucracy related to Opportunity Zones.
For context, nearly all real estate investors that have created Opportunity Funds have done so only for individual properties thus far, with the exception of a vocal few REIT offerings. Prior to the new guidance, there was no real mechanism to enter, substantially improve and then exit a group of Opportunity Zone investments as a portfolio. It has been safest to limit your risk by having individual funds per property or asset.
Investors now have one year to reinvest funds that were in an Opportunity Fund and then sell without taking a tax penalty. This gives flexibility to investors to exit particular investments if they really need to without completely interrupting their tax status.
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