Opportunity Zone Questions

[Joseph Shaggs]

Hello All!

Posting this to 1031 Exchanges because it seems most related, sorry if I messed that up!

Based on what's been released about the Opportunity Zones program, I'm having trouble figuring out the following:

1. It seems that if you hold a property for 10 years, then when you sell there will be no capital gains.  I believe this is because the cost basis of the property is automatically set at the sale price, but maybe I'm wrong?  Is it possible to depreciate the property?  If you depreciate the property to $0 and then sell, is there still no capital gains?  And do we truly have the option to sell the place anytime after 10 years (meaning you can hold it for a very long time and then sell with no capital gains?)

2. Does the program apply to individuals?  Or does the purchase have to be made by a corporation or partnership?  It seems that the updated guidance is that it is a self-certification process.  I read somewhere that 90% of the assets of the "opportunity fund" need to be in an opportunity zone.  So if it's possible to purchase as an individual, does that mean that 90% of the individual's assets need to be in an opportunity zone?

3. What about state taxes?  Does it depend on the state? (i'm in New York).  Or do the same rules at the federal level apply to state (no capital gains if held for 10 years, deferral of existing capital gains if rolled into property in opportunity zone)

Best,
Joe

[Neal Stephens]

Thanks Basit and Chris. I'm looking at buying a few properties in an Opportunity Zone and forming a QOF, so this is helpful. The actual Opportunity Zone Revenue Code language (§§ 1400Z-1 and 1400Z-2) is not too lengthy, if anyone wants to read through, and the IRS has a Q&A out that I found helpful: 

IRS Q&A: https://www.irs.gov/newsroom/opportunity-zones-fre...

§1400Z-1: http://uscode.house.gov/view.xhtml?hl=false&editio...

§1400Z-2: http://uscode.house.gov/view.xhtml?hl=false&editio...

I would recommend talking with your CPA Joseph before pursuing. He/she should at least be able to tell you what not to do! :)