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If you have never heard of Qualified Opportunity Zones, it is little wonder since they were added to the tax code by the Tax Cuts and Jobs Act on December 22, 2017. As an interested investor or an interested taxpayer, you can find the basic information right here.
Opportunity zones are designed to spur economic development and job creation in distressed communities throughout the country and U.S. possessions by providing tax benefits to investors who invest eligible capital into these communities.
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The first set of Opportunity Zones, covering parts of 18 states, were designated on April 9, 2018. Opportunity Zones have later on been designated covering parts of all 50 states, the District of Columbia and five U.S. territories.
The list of designated Qualified Opportunity Zones can be found at Opportunity Zones Resources and in the Federal Register at IRB Notice 2018-48. Further a visual map of the census tracts designated as Qualified Opportunity Zones may also be found at Opportunity Zones Resources.
The numbers in the list are the population census tracts designated as QOZ. You can find 11-digit census tract numbers, also known as GEOIDs, using the U.S. Census Bureau’s Geocoder. After entering the street address, select ACS2015_Current in the Vintage drop-down menu and click Find. In the Census Tracts section, you’ll find the number after GEOID.
Qualified Opportunity Zones (QOZ) retain this designation for 10 years.
Investors can defer tax on any prior gains until no later than December 31, 2026, so long as the gain is reinvested in a Qualified Opportunity Fund (QOF), an investment vehicle organized to make investments in QOZ.
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If the investor holds the investment in the Opportunity Fund for at least ten years, the investor would be eligible for an increase in its basis equal to the fair market value of the investment on the date that it is sold.
The investor may defer tax on eligible capital gains by making an appropriate investment in a QOF and meeting other requirements.To qualify for deferral: |
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Capital gains must be invested in a QOF within 180 days. |
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Taxpayer elects deferral on Form 8949 and files with its tax return. |
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Investment in the QOF must be an equity interest, not a debt interest. |
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If you are and investor and hold your QOF investment at least five years, you may exclude 10 percent of the original deferred gain.
If you hold your QOF investment for at least seven years, you may exclude an additional five percent of the original deferred gain for a total exclusion of 15 percent of the original deferred gain.
The original deferred gain – less the amount excluded due to the five and seven year holding periods – is recognized on the earlier of sale or exchange of the investment, or December 31, 2026.
If you hold the investment in the QOF for at least 10 years, you may elect to increase its basis of the QOF investment equal to its fair market value on the date that the QOF investment is sold or exchanged. This may eliminate all or a substantial amount of gain due to appreciation on the QOF investment.
You can get the tax benefits even if you don’t live, work or have a business in an Opportunity Zone. All you need to do is invest a recognized gain in a Qualified Opportunity Fund and elect to defer the tax on that gain.
To become a Qualified Opportunity Fund, an eligible corporation or partnership self-certifies by filing Form 8996, Qualified Opportunity Fund, with its federal income tax return. Early-release drafts of the form and instructions are posted, with final versions expected in December. The return with Form 8996 must be filed timely, taking extensions into account.
Over the next few months, the Treasury Department and the IRS will be providing further details, including additional legal guidance, on this new tax benefit. |
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Changes to Employee Achievement Award Rules
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Last year’s Tax Cuts and Jobs Act made changes to several programs that can affect an employer's bottom line and its employees' deductions. This includes employee achievement awards.
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Under previous law employers could deduct the cost of certain employee achievement awards. Deductible awards were excludible from employee income.
Under the Tax Cuts and Jobs Act there is a prohibition on cash, gift cards and other non-tangible personal property as employee achievement awards.
Special rules allow an employee to exclude certain achievement awards from their wages if the awards are tangible personal property.
The new law clarifies that tangible personal property doesn’t include cash, cash equivalents, gift cards, gift coupons, certain gift certificates, tickets to theater or sporting events, vacations, meals, lodging, stocks, bonds, securities, and other similar items. |
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New Tax Benefit for Stock Options and Restricted Stock Units
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The IRS issued Notice 2018-97 earlier in December offering guidance on a recent tax law change that allows qualified employees of privately-held corporations to defer paying income tax, for up to five years, on the value of qualified stock options and restricted stock units (RSUs) granted to them by their employers.
In general, executives, highly-compensated officers and those owning one percent or more of the corporation’s stock cannot make the deferral election. Federal Insurance Contributions Act (FICA) tax and Federal Unemployment Tax Act (FUTA) tax payable on the value of qualified stock may not be deferred. |
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Nondeductible Amount of Parking Fringe Expenses and Unrelated Business Taxable Income
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The IRS also issued recently interim guidance regarding the treatment of qualified transportation fringe benefit expenses paid or incurred after Dec. 31, 2017.
The new rules assist taxpayers in determining the amount of parking expenses that are no longer tax deductible.
They also help tax-exempt organizations determine how these nondeductible parking expenses create or increase unrelated business taxable income (UBTI).
The IRS acknowledges that this guidance falls late in the year and taxpayers that own or lease parking facilities may have already adopted reasonable methods in 2018 to determine the amount of their nondeductible parking expenses.
Taxpayers may rely on the guidance or, until further guidance is issued, use any reasonable method for determining nondeductible parking expenses related to employer-provided parking.
A key part of this guidance is a special rule enabling many employers to retroactively reduce the amount of their nondeductible parking expenses.
Under this rule, employers will have until March 31, 2019, to change their parking arrangements to reduce or eliminate the number of parking spots they reserve for their employees.
By making this change, many churches, schools, hospitals and other tax-exempt organizations may be able to reduce their associated UBTI.
In some cases, the organization may avoid having to file a Form 990-T, Exempt Organization Business Income Tax Return, altogether. Such a change made in parking arrangements will apply retroactively to Jan. 1, 2018. |
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The IRS also announced that it will provide estimated tax penalty relief in 2018 to tax-exempt organizations that offer these benefits and were not required to file a Form 990-T last filing season.
Additionally, some tax-exempt organizations will not exceed the $1,000 threshold below which an organization is not required to file a Form 990-T or pay the unrelated business income tax.
Updates on this and other TCJA provisions can be found on the Tax Reform page of IRS.gov.
Of course, we think that our updates are even more appealing to you. Nevertheless, don’t forget that your most important appeal should be to your tax professional for guidance in all matters regarding your specific tax and financial situation. |
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