Proposed regulations recently issued by the Department of the Treasury have provided additional guidance on Qualified Opportunity Zones (QOZ) to potential investors and led to increased taxpayer interest, specifically in the long-term care industry.
A QOZ is a designation provided to selected distressed communities to spur economic growth in those areas by providing significant tax advantages for new investments. There are more than 8,500 QOZs identified as of November 2018 with an official QOZ list provided in IRS Notice 2018-48.
A qualified opportunity zone fund (QOF) is a partnership or corporation that owns an equity interest in a qualifying trade or business operating in a QOZ.
Long-term care investors and operators investing in QOFs may gain one or more of the following tax benefits:
- Deferral of tax on reinvested gains until the earliest sale of the QOF investment or December 31, 2026.
- Where the investment is held for at least five years, the tax basis is increased by 10% of the capital gains reinvested.
- Where the investment is held for at least seven years, the basis is increased by an additional 5% for a total of 15% of capital gains invested. The increase to the tax basis will reduce gain on the disposition of the investment or upon the automatic gain recognition on December 31, 2026.
- Where the investment is held for at least 10 years, any appreciation upon the sale of the QOF interest is permanently deferred.
A QOF must also meet certain certification and asset testing requirements.
This gain deferral opportunity and potential gain exclusion provides significant tax incentives for the development or the significant renovation of newly acquired facilities in a QOZ for long-term care operators and investors looking to expand their portfolio of facilities.
For an in-depth look at QOZs and specifics on fund structures and additional requirements, read our Insight.
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To learn more about QOZ opportunities, contact your Moss Adams professional. You can also visit our dedicated tax reform page to learn more.