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U.S. Treasury releases proposed regulations on Opportunity Zones

By on October 19, 2018

SAN JUAN – Months after Puerto Rico was designated a so-called Opportunity Zone, the U.S. Treasury Department issued Friday proposed guidance for the related tax incentives.

The tax breaks created by the 2017 Tax Cuts and Jobs Act are designed to spur economic development and job creation by encouraging long-term investments in economically distressed communities.

“We want all Americans to experience the dynamic opportunities being generated by President Trump’s economic policies. We anticipate that $100 billion in private capital will be dedicated towards creating jobs and economic development in Opportunity Zones,” Treasury Secretary Steven Mnuchin said in a statement. “This incentive will foster economic revitalization and promote sustainable economic growth, which was a major goal of the Tax Cuts and Jobs Act.”

The proposed regulations released Friday clarify what gains qualify for deferral, which taxpayers and investments are eligible, the parameters for Opportunity Funds, and other guidance. They provide investors and fund sponsors with information needed to enter into new business arrangements in designated Opportunity Zones. Treasury said it plans on issuing additional guidance before the end of the year.

The Opportunity Zone incentive offers capital gains tax relief to investors for new investment. Benefits include deferral of tax on prior gains as late as 2026 if the amount of the gain is invested in an Opportunity Fund. They also include “tax forgiveness” on gains on that investment if the investor holds the investment for at least 10 years, the period that Opportunity Zones retain their designation. However, under the proposed regulations, investors can hold onto their investments in Qualified Opportunity Funds through 2047 without losing tax benefits.

Treasury certified 8,761 communities in the 50 states, the District of Columbia and territories earlier this year. Nearly 35 million people live in areas designated as Opportunity Zones.

Based on data from the 2011-2015 American Community Survey, the designated regions had an average poverty rate of more than 32 percent, compared with the 17 percent national average. Additionally, the median family income of the designated tracts was on average 37 percent below the area or state median, and had an unemployment rate of nearly 1.6 times higher than the national average, the statement added.

View the guidance here.

Puerto Rico designated an Opportunity Zone under US tax reform

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