New Opportunity Zone Regs Aim to Provide Relief from the Pandemic

The IRS has released new deadlines for opportunity zone investments. The guidance includes new investment deadlines, penalty notices and extensions to improvement periods, all of which will help to fuel investment in distressed assets through the market change.

“The Internal Revenue Service recently released Notice 2020-39, providing generous benefits for qualified opportunity funds and their investors,” Phil Jelsma, a partner and chair of the tax practiceeam at Crosbie Gliner Schiffman Southard & Swanson, tells GlobeSt.com. “The Notice provides relief regarding the time deadline to invest in a QOF; penalty relief; extending the 30-month substantial improvement period; extending the period of time of the working capital safe harbor; and extending the 12-month reinvestment period for sale of properties by a QOF.”

These new deadlines and regulations line up with increasing investor interest in distressed asset investing as a result of the pandemic. “The opportunity zone programs rely on investors deploying capital gains,” says Jelsma. “The volatility and uncertainty of the stock market throughout the COVID-19 pandemic has investors searching for other places to put their money, and opportunity zone funds offer an appealing alternative.”

While investors are already looking for distressed asset opportunities, Jelsma says that these new deadlines will help to attract capital to opportunity zone investments specifically, as opposed to other distressed opportunities. “These latest IRS extensions add to their appeal, allowing investors additional time to invest, acquire and improve property in opportunity zones. The new deadlines will allow many previously stalled deals to move forward,” says Jelsma.

While this new guidance makes opportunities zones more attractive, Jelsma still recommends taking a conservative investment approach. “Take advantage of the additional time is to locate properties that are available for development,” says Jelsma. “Don’t pick the first fund or project that is available. Do your due diligence. A single investor can form his or her own QOF. As the market recovers, there may be more and better opportunities. Don’t rush into anything.”

Overall, Jelsma expects to see continued interest in the investment model, particularly for multifamily assets. “Many opportunity zone developments are apartments with affordable rents in areas undergoing revitalization—in spite of today’s erratic economy, this sector remains a solid investment,” he says. “In addition, because of the problems financing properties, more and more Section 1031 Exchanges are failing, and Opportunity Zones are the only viable option.”