Tax Incentives in the New Tax Cuts & Jobs Act

The new Tax Cuts and Jobs Act (the “Act”) provides tax incentives for making investments in low-income communities through Qualified Opportunity Zones.  Qualified Opportunity Zones will be designated by nomination of census tracts qualifying as low-income communities as well as tracts that are contiguous with low-income communities.  Governors of every state will have the opportunity to nominate a minimum of 25 Qualified Opportunity Zones by March 21, 2018.

The Act allows taxpayers to defer short term or long term capital gains tax due upon a sale or exchange of property if the capital gain is reinvested within 180 days in a Qualified Opportunity Fund.  The deferred gain must be recognized on the earlier of two dates: the date on which the Opportunity Fund investment is sold or December 31, 2026.  A Qualified Opportunity Fund is defined in the Act as any investment vehicle organized as a corporation or a partnership for the purpose of investing in “qualified opportunity zone property,” and that holds at least ninety percent (90%) of its assets in “qualified opportunity zone property.”  If an investment in a Qualified Opportunity Fund is maintained for five years, the taxpayer will receive a step-up in tax basis equal to ten percent (10%) of the original gain.  If an investment is maintained in the Qualified Opportunity Fund for seven years, the taxpayer will receive an additional five percent (5%) step-up in tax basis excluding up to fifteen percent (15%) of the original gain from taxation.   For an investment held for longer than ten years, upon sale or exchange the taxpayer has the opportunity to elect the basis in the investment to be equal to the fair market value of the investment.

The Tax Cuts and Jobs Act will provide capital to businesses, projects and commercial property in distressed communities to help revitalize them.  In addition, the Act will provide opportunities for both individual and corporate investors to defer current capital gains, significantly increase basis in their current investments, as well as abate all future capital gains on investment.  The attorneys at Rock Fusco & Connelly are prepared to navigate you or your company through the new tax incentives set forth by the Tax Cuts and Jobs Act.


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