The rules on opportunity areas have become clearer and are generating new investments

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Investors welcome the highly anticipated regulations released this week for the Qualified Opportunity Zone program, claiming that this clarity will allow them to spend money and achieve the goal of the program, which is to contribute the transformation of economically underdeveloped communities. The clarifications were released Wednesday by the Treasury Department and the Internal Revenue Service.

The story back. The program, created in the 2017 Tax Account, aims to channel capital gains from the sale of assets to long-term investments in low-income neighborhoods by providing a significant tax advantage to investments in these assets. areas, with the aim of stimulating economic development and fostering economic growth. create jobs. Under this program, investors may pay any capital gain into a Qualified Opportunity Fund, by self-certifying their own fund with the IRS or by joining the one offered by a portfolio manager.

These funds must invest 90% of the assets in real estate or commercial actions in an area. The funds must remain invested for 10 years to obtain the maximum benefit: a capital gains tax on only 85% of the initial amount and no tax on any capital gain on investments in the zone.

The National Council of State Housing Agencies, or NCSHA, published a fund directory of Opportunity Zone in November.

Regulatory confusion has delayed the progress of investments: the incorrect construction of a fund or an incorrect investment could nullify the potential tax benefit. Until this week, the rules on business investment were too vague for investors to feel comfortable with this procedure, which prevented fundraising and action.

What's up. The new guidelines clarified several key points, especially if 50% of the gross income of a company in the area had to come from its local area, which would have limited the types of eligible businesses to retailers and cafes instead of the next Amazons. In the new directive, criteria range from revenue generation to service transactions and location of employees.

Look forward. Jim Sorenson, president of the Sorenson Foundation, based at the University of Utah's David Eccles School of Business, is optimistic that the program will work as planned. Sorenson, who set up an Opportunity Zone working group, said Barron He sees in the new regulations the launch of "the most positive and transformative period for the communities of America since the New Deal".

Investments in Opportunity Zone could prove to be a popular investment in alternative assets, although investors should be on the lookout for high fees for new funds.

Write to Mary Childs at [email protected]