San Diego
Opportunity zone investors are getting some slack during the pandemic. The 180-day deadline for investors to place capital gains in a qualified opportunity zone fund—and therefore avoid capital gains taxes—has been extended to July 15, if the deadline fell during the pandemic from April 1 to July 1.
"For the first time, time sensitive actions include the period of time to invest eligible gains in a qualified opportunity fund," Phil Jelsma, a partner and chair of the tax practice team at Crosbie Gliner Schiffman Southard & Swanson, tells GlobeSt.com. "In general, these new rules do not apply to all potential capital gains—only assets disposed of between October 4, 2019 and January 17, 2020. This extension could also provide QOFs with additional time to meet their deadlines."
The pandemic is the first time in US history that there has been a national emergency declaration through FEMA. The action prompted a national response to federal programs like opportunity zone funds, and other deadlines are likely to be impacted as well. "Since the federally declared disaster area applies to all 50 states, the normal 30-month time period for working capital to be deployed by a qualified opportunity zone Business may also be extended," says Jelsma.
New deadlines could give investors 24 months to utilize working capital in a declared disaster area. "The final Opportunity Zone regulations provide that a qualified opportunity zone business may receive up to 24 months to utilize its working capital assets within a federally declared disaster area. This suggests that qualified opportunity zone businesses can receive an extension for working capital safe harbor but not for a period of over 24 months. The 24-month period is not an automatic extension, but means the IRS may elect to grant additional time," says Jelsma.
Another extension could apply to the 12 months deadline to acquire a replacement asset in a qualified opportunity zone fund. "The qualified opportunity zone disposes of an asset, it generally has 12 months to acquire another asset in a qualified opportunity zone. Similar to the point earlier, the final regulations suggest this period may be extended within a federally declared disaster area providing that a QOF may receive up to an additional 12 months but it does not appear to be an automatic extension," says Jelsma.
Despite the extension to deadlines, the pandemic could continue to have an impact on the viability of opportunity zone investments. "The overwhelming uncertainty pervading today's real estate market is mitigating their appeal," says Jelsma. The majority of opportunity zone transactions have hit the pause button while businesses close their doors and investors quarantine in response to shelter in place mandates. Most lenders and underwriters have been unwilling to move forward until there is some clarity as to the general direction of the economy. As a result, many opportunity zone deals are on hold."
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Kelsi Maree Borland
