One of the most innovative provisions of the Tax Cuts and Jobs Act (Public Law 115-97) is the creation of Qualified Opportunity Zones (Opportunity Zones or QOZ) and Qualified Opportunity Zone Funds (Opportunity Zone Funds or QOF) in all 50 states. Together, the Opportunity Zones and Opportunity Zone Funds function to encourage economic development and create jobs in distressed areas, both in rural and low-income urban communities. West Virginia Opportunity Zones and Opportunity Zone Funds provide tax advantages based on investment in the economic development of designated areas in the Mountain State.
The State of West Virginia embraces the goals of the Opportunity Zones program. The West Virginia Department of Commerce says that "[t]he Opportunity Zone Program will drive much needed capital into our state's struggling communities," and West Virginia Governor Jim Justice contends that the program "continues our movement forward and the hope for brighter days ahead." This article introduces and describes the Opportunity Zones program and will be followed by three more, each on program opportunities in West Virginia, Kentucky, or Ohio.
West Virginia Opportunity Zones and Qualified Opportunity Funds in WV
The Internal Revenue Service (IRS) defines an Opportunity Zone as an area or community that is economically distressed and in which new investment could receive preferential tax treatment. Under the Tax Cuts and Jobs Act, Governor Jim Justice nominated areas to be designated as West Virginia Opportunity Zones in the Mountain State. The process for nominating and certifying Qualified Opportunity Zones concluded in June 2018, when the US Department of the Treasury and the Internal Revenue Service announced the final list of approved Opportunity Zones.
A Qualified Opportunity Fund is the investment vehicle, set up as either a partnership or corporation, used to invest in eligible property that is located in Qualified Opportunity Zones in West Virginia or elsewhere.
Tax Matters: Advantages for Investors of WV Opportunity Zones
By investing in WV Opportunity Zones (QOZ projects) and the development of new commercial and residential real estate, investors may be eligible for preferential tax treatment. Gains from prior investments that would otherwise be taxable when invested in a Qualified Opportunity Zone may be eligible for deferred tax status until the end of 2026 or until the investment is sold or exchanged, whichever is earlier.
The longer the QOF investment is held, the larger the exclusion of the deferred gain. Also, if the investor holds the investment in the QOF for at least 10 years, the investor is eligible for an increase in basis of the QOF investment.
Ongoing Developments and Discussion about Opportunity Zones
Recent developments contribute to the Opportunity Zones discussion. For instance, in January of 2019, a group of federal legislators sent a bipartisan letter to Treasury Secretary Steven Mnuchin, urging the Treasury to address remaining key issues related to Opportunity Zone regulations.
In addition, the IRS held a hearing on February 14, 2019, at which entities such as the National Council of State Housing Agencies provided comments, voiced objections, and made suggestions. More than 200 people attended the hearing, and some were turned away after the room reached capacity. The IRS plans to release another set of proposed rules and hold another public hearing later in 2019 before issuing the final regulations.
Legal Counsel for Your QOZ Project
West Virginia Opportunity Zones provide new "hope for brighter days ahead" as envisioned by Governor Justice, but investors must comply with the establishing legislation to benefit.
Knowing how to invest in Qualified Opportunity Zones in West Virginia or how to set up a Qualified Opportunity Fund requires care to ensure that properties are accurately described and fall within the designated Opportunity Zones. Online maps of opportunity zones posted by different sources vary in accuracy. Investment in a property that ultimately fails to fall in an opportunity zone or in which local zoning ordinances prohibit certain types of development activities can be costly and result in ineligibility for the desired tax advantages.
To have confidence that you qualify for opportunity zone incentives, contact business attorney Steve Golder of Jenkins Fenstermaker, PLLC. You can reach Steve at (304) 523-2100 or (866) 617-4736 or by using his online contact form.