Real Estate

The Tax Cuts and Jobs Act, which was enacted by Congress in December 2017, includes the Opportunity Zone Program, which allows taxpayers to receive favorable tax treatment if they sell appreciated capital assets and use the corresponding gain to invest in property located in low-income communities, referred to as Opportunity Zones. Investors and other stakeholders have identified this program as a potential catalyst in the development of economically distressed communities. The Treasury Department and the Internal Revenue Service have provided initial program information and continue to issue further guidance on various aspects of the program.

Each state has identified, and the Treasury Department has approved, a number of locations within their borders located in economically distressed communities that now qualify as Opportunity Zones for the purposes of this program. In New York State alone, there are more than 500 Opportunity Zones.

Investors that invest in Opportunity Zones can defer, reduce and possibly eliminate a portion of their federal tax liability. Opportunity Zone investors can take advantage of:

• A potential deferral on the inclusion of the capital gain in the investor’s federal gross income until December 31, 2026, assuming continued ownership of the investment;
• A reduction of 10 percent of the investor’s federal taxable gain if the investor holds the investment for at least five years;
• A reduction of an additional five percent of the investor’s federal taxable gain if the investor holds the investment for at least seven years; and
• An increase in the investor’s taxable basis to the fair market value upon sale of the investment, so long as the investor holds the investment for at least 10 years.

Those stakeholders who can directly or indirectly benefit from the Opportunity Zone Program include:

• Real estate developers;
• Businesses located in Opportunity Zones;
• Financial institutions and investment fund managers;
• Investors; and
• Municipalities.

Phillips Lytle has assembled a multidisciplinary team of practitioners to counsel market participants in the various types of transactions associated with this program. This includes the corporate, tax and securities issues associated with the formation of Opportunity Funds and investment in Opportunity Zone businesses, as well as the real estate considerations associated with the development of properties located in Opportunity Zones.

Our attorneys continue to monitor the legislative and regulatory evolution of the Opportunity Zone Program and are available to counsel market participants on Opportunity Zone tax benefits as well as how to structure transactions under the rules of the program.