(a) “Original use” of tangible property acquired by purchase begins on the date when that person or a prior person first places the property in service in the qualified opportunity zone for purposes of depreciation or amortization.

(b) Where a building or other structure has been vacant for at least five years prior to being purchased by a qualified opportunity fund or qualified opportunity business, the purchased building or structure will satisfy the “original use” requirement.

(c) Improvements made by the lessee to the leased property satisfy the “original use” requirement.

“Inventory” – Qualified opportunity zone business property means tangible property used in a trade or business of the qualified opportunity fund if, during substantially all of the qualified opportunity fund's holding period for such property, substantially all of the use of such property was in a qualified opportunity zone. The question arose about inventory in transit on the last day of the taxable year of a qualified opportunity fund. Would it be counted against the qualified opportunity fund when determining whether the fund met the 90% ownership requirement?

Inventory does not fail to be considered used in a qualified opportunity zone solely because the inventory is in transit from a vendor to a facility of the trade or business that is in a qualified opportunity zone, or from a facility of the trade or business that is in a qualified opportunity zone to customers of the trade or business that are not located in a qualified opportunity zone.

Leased Property –

A. Leased tangible property meeting the following two general criteria may be treated as qualified opportunity zone business property for purposes of satisfying the 90% asset test under section 1400Z-2(d)(1) and the substantially all requirement under section 1400Z-2(d)(3)(A)(i).

(i) Must be acquired under a lease entered into after December 31, 2017.

(ii) Substantially all of the use of the leased tangible property must be in a qualified opportunity zone during substantially all of the period for which the business leases the property.

B. There is no original use requirement or substantial improvement requirement imposed on leased tangible property due to the nature of leased property.

C. Leased property does not need to be from a lessor that is an unrelated party but there are certain requirements that need to be met for this to be a valid option under the qualified opportunity fund rules.

D. Valuation of leased property for the 90% test as well as the substantially all requirement are based on an applicable financial statement valuation method or an alternative present value method.

“These are still just proposed regulations,” says Michael Greenwald, a partner at the accounting firm Friedman LLP. “We are now almost 14 months into this provision, one which has a short timeframe given the nature of the gain deferral period. You have to hold the asset for five years and then two more to get the full 15% basis step-up.”

He also states investors, promoters and advisors can get some comfort from them but would be better helped with final guidance.

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