New Federal Tax Reform Legislation; Opportunity Zone Program

New Federal Tax Reform Legislation; Opportunity Zone Program

During the first quarter of 2018, Washington took center stage as corporate and individual tax relief took debate over the passage of a new federal tax reform legislation. What went un-noticed was a smaller section of the new law, which may have a significant impact in channeling investments into distressed areas throughout the county. Certain locations in our home of Jersey City, New Jersey may fit perfectly for this new law.

The new law creates the “Opportunity Zone Program,” which establishes preferential tax treatment for unrealized capital gains that are reinvested in to be determined “qualified opportunity zones.” To determine these zones, the law has instructed governors of each state to identify eligible pools of both low-income, high-poverty census tracts.

What’s important to our investors is that this new law will allow corporations and other entities to establish Opportunity Funds. Opportunity Funds are created for the purpose of investing in the qualified opportunity zone properties. The tax reform will both allow investors to benefit economically, and our state to benefit from new economic development for its citizens.

As outlined by the Economic Innovation Group, www.eig.org , investments made in a qualified fund will receive preferential tax treatment, including but not limited to:

  1. temporary deferral of inclusion in taxable income for capital gains reinvested in an Opportunity Fund. The deferred gain must be recognized on the earlier of the date on which the opportunity zone investment is disposed of or December 31, 2026.
  2. step-up in basis for capital gains reinvested in an Opportunity Fund. The basis is increased by 10% if the investment in the Opportunity Fund is held by the taxpayer for at least 5 years and by an additional 5% if held for at least 7 years, thereby excluding up to 15% of the original gain from taxation.
  3. permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in an Opportunity Fund if the investment is held for at least 10 years. This exclusion only applies to gains accrued after an investment in an Opportunity Fund.

To take advantage of the special tax treatment created under this program, taxpayers must roll over non-opportunity zone gains before Dec. 31, 2026.

If interested in learning more about this or other economic development incentive programs, please do not hesitate to contact AMS Law at (201) 792-3333 or info@amslg.com.

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