On June 24, the Internal Revenue Service updated its Opportunity Zones Frequently Asked Questions in order to address investments of Section 1231 gain (i.e., gain on the sale or exchange of property used in a trade or business) by taxpayers into a Qualified Opportunity Fund before the end of the 2018 tax year. Under the Proposed Regulations issued on April 17, 2019, Section 1231 gains may be invested into a Qualified Opportunity Fund, but only to the extent that Section 1231 gains exceed Section 1231 losses at the end of the year. The new FAQ helps taxpayers who invested Section 1231 gain in 2018 before knowing that the netting rule would be imposed by the Proposed Regulation. In particular, under the new FAQ, a taxpayer who invested Section 1231 gain before the end of 2018 may still make a valid deferral election up to the amount of the taxpayer’s net Section 1231 gain. Importantly, the new FAQ does not relax the netting rule for tax years after the Proposed Regulations were issued.
Should you have any questions or wish to discuss the opportunity zone program, please contact James Duffy at (612) 977-8626 or Dimitrios C. Lalos at (612) 977-8830.