He explains a typical fund may have multiple properties, so the initial law made it difficult for an investor trying to sell his or her interest in the fund. “If let's say all investors come in at the same time and after they hit the 10 year mark they all want out, the fund doesn't have the liquidity unless they sell the assets,” says Wieder. “So how do they get you out prior to these regs? They had to buy your interest. If they sold the property it would trigger a gain that you would recognize. Now I don't have to sell my interest. The fund can sell an asset, flow a gain to me and I can exclude that gain on my tax return because I held the investment for the 10 year period.”

This clarification now furthers the actual launching of funds.

Launching Opportunity Funds

Wieder says funds announcing they were “launching” were actually just “forming.” He defines launching as taking in and deploying money. He says “forming” a fund that's not taking in any money is actually meaningless. If funds were taking in money they would have needed all sorts of disclaimers that said the fund might not actually qualify for opportunity zone benefits or tax deferrals.

Prior to the new guidelines, most investors would have been hesitant to place their money in funds, according to Wieder. He explains people have to invest the money 180 days from the time of the gain or if coming from a partnership or S-corporation 180 days from Dec. 31. You wouldn't want to invest your money in a fund and have it returned because this would burn off time in the 180 days you have to make your investment with the clock ticking.

With the new more realistic exit route Wieder says, “Now you'll start seeing funds truly starting to take in money and starting to deploy it.”

Other Changes that Help Real Estate

Wieder points to other changes. The prior regs said you had to invest cash. Now you can invest cash or property.

The program requires that either the original use of the property begins with the qualified opportunity fund or that the property be substantially improved. If you have vacant land you are going to develop, the rules state it has to be a first use asset. Initial use begins when the property is eligible to be depreciated or amortized, but vacant land is not depreciable or amortized. “So I can develop my building, and initial use starts when that building is depreciable. The fact that I already owned the land doesn't hurt me. Once you build that's when the clock starts,” the tax pro explains.

Finally, Benjamin Franklin's observation on death and taxes today may require a minor Opportunity Zone caveat.

A gift triggers recognition of the gain. “So if I am an investor in a Qualified Opportunity Zone fund and I gift my children my interest in that fund, that will trigger my gain and I'll have to pay my tax then,” says Wieder. “However, I die, then that will not trigger the gain being recognized to whomever receives it. They will continue with the deferral that I had.”

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