APARTMENT ADVOCATE
NATIONAL APARTMENT ASSOCIATION /
NATIONAL MULTIFAMILY HOUSING COUNCIL
Need to Know: Opportunity Zones
O
pportunity Zones were created
by the Tax Cuts and Jobs Act
in late 2017. This new program
was added to the tax code to encourage
economic development in low-income
communities while providing tax
deferment incentives for investors that
have unrealized capital gains.
Unrealized capital gains are profits existing
on paper, resulting from an investment
which has yet to be sold for cash.
There is ample opportunity to participate,
as there are more than 8,700 designated
zones that cover sections of all 50 states,
including the District of Columbia and
five U.S. territories.
Along with the extensive number of
zones, a study conducted by Real Capital
Analytics finds that an estimated $6 trillion
of unrealized capital gains are eligible to be
invested in opportunity zone funds.
While not all unrealized capital gains will
be invested in opportunity zones, these
zones encourage commercial and business
real estate development in low-income
areas throughout the United States.
To contribute to the economic boom
and qualify for the tax deferment incentive,
investors must place the unrealized capital
gains in a Qualified Opportunity Funds
(QOF). QOFs must be certified by the
U.S. Treasury Department; organized as a
corporation or partnership for the purpose
of investing in Qualified Opportunity
Zone property (QOZ); and must hold
at least 90% of their assets in the QOZ
property. QOZ property includes QOZ
stock, QOZ partnership interests and
QOZ business property. Another perk
worth noting is that investors do not have
to live in the opportunity zone to receive
the tax benefit.
54 | TRENDS
JANUARY 2019
Once an unrealized capital gain is
invested in a QOF, the tax deferment is
incentivized by the length of the investment.
If an investor holds the investment for 5
years, the taxable amount of the original
unrealized capital gain is reduced by 10%.
After 7 years, the taxable amount of the
original capital gain is reduced by an
additional 5%, totaling 15%. No matter how
long the investment is held, the original
unrealized capital gain must be recognized
at the end of the deferral period, December
31, 2026. Appreciation in value after that is
permanently excluded. If the investment is
held for 10 years, any gain from the original
capital gain is not taxed. With additional regulations expected
in January, NAA/NMHC have filed
joint comments to The U.S. Department
of Treasury regarding the proposed
regulations on the implementation of
the new Opportunity Zone tax incentive,
to achieve the utmost clarity in the final
regulations for our members. If you have
any questions regarding Opportunity
Zones as the additional guidance is
released, please contact Jodie Applewhite,
Manager, Public Policy at NAA.
• At the end of the temporary deferment
period, which is December 31, 2026,
Joe must recognize a $42,500 gain on
his tax return. that it is not in the business interests
of rental housing providers to reject
potential residents without good cause
and urges the Court to recognize the
importance of tenant screening in the
context of rental housing. “The Seattle
Fair Chance Housing Ordinance not only
violates the First Amendment…but it also
ignores common sense and experience
in predicting human behavior. It further
impairs rental property owners’ ability to
NAA FILES AMICUS BRIEF ON
CRIMINAL SCREENING CASE
As part of its continued efforts to
weigh
in on legal cases of national concern,
As an example: Joe sells an investment
NAA has filed an amicus brief in Yim et
of $200,000 in year 2017. Joe has an
al. v. City of Seattle. The case is an ongoing
unrealized capital gain of $50,000.
battle between a small property owner and
To defer paying taxes on his unrealized
the City of Seattle over its Fair Chance
capital gain, Joe invests the $50,000 in a
Housing ordinance.
Qualified Opportunity Fund.
The ordinance, which went into effect
• If Joe holds his investment for 5 years, earlier this year, bars owners from
until year 2022, his original unrealized evaluating the criminal history of
capital gain of $50,000 taxable amount applicants during the resident screening
is reduced by 10% ($5,000), leaving
process (with very few limited exceptions).
only $45,000 taxable.
The ordinance in question would have a
• If Joe holds his investment for 7 years, severe impact on owners and operators
until year 2024, a total of 15% ($7,500) across the country if other policymakers
were persuaded to adopt similar legislation.
is no longer taxable of the original
$50,000 unrealized capital gain.
In its brief, NAA argues emphatically
• If Joe holds his investment for at least
10 years, until year 2027, he would
not realize any additional capital gain
beyond the $42,500 recognized at the
end of the deferral period (2026).
www.aamdhq.org