A Hot Topic….Qualified Opportunity Funds
By Kimberly Jessup Ripberger, Partner, CPA
Opportunity zones continue to be one of the “hot topics” from the passage of The 2017 Tax Cuts and Jobs Act. The Act created a tax incentive vehicle through investment of capital gains into Qualified Opportunity Funds (“QOF”) to encourage economic redevelopment in state-designated low-income census tracts known as Opportunity Zones.
The QOF’s investment of the capital gains provides 3 key tax benefits:
- an immediate tax deferral if the capital gain is invested within the statutory timeline requirement.
- a 10% or 15 % exclusion on the appreciated gain based on the QOF’s interest holding period.
- a deferral of the appreciated gain if the investor’s QOF interest is held for at least 10 years.
The tax incentive mentioned above has been discussed in conjunction with other development incentives in an effort to revitalize economically distressed communities. Conversation is still ongoing with combining the low-income housing tax credit and the capital gain investment in a QOF since the investors are derived from two different sources: institutional and individuals, respectively.
One recent opportunity zone related announcement occurred on May 9, 2019 with the U.S. Department of Housing and Urban Development’s (“HUD”) release of Notice: H 2019-07. This notice provides incentives for owners applying for HUD insured loans for properties located in the designated opportunity zones.
Two incentives discussed in Notice: H 2019-07 for Section 221(d)(4), Section 220, and Section 223(f) HUD loan program applicants include the following:
- Expedited processing during the evaluation phase if the property is located in a designated opportunity zone and/or involves an investment from a QOF.
- The loan applicants are eligible for a reduction in the current mortgage insurance application fee of $3.00 per thousand dollars of the requested mortgage amount to either $2.00 per thousand dollars or $1.00 per thousand dollars of the requested mortgage amount depending on the property either satisfying the market rate and affordable housing requirements as defined or the broadly affordable housing requirements as defined, respectively.
The 2017 Tax Cuts and Jobs Act created one of the most discussed topics in recent years through the passage of a tax incentive vehicle to encourage economic redevelopment in state-designated low-income census tracts known as Opportunity Zones. The discussion will continue as guidance continues to be issued within the various Federal Agencies.
Please consult your assurance or tax advisor for further discussion regarding incentives for community redevelopment.
Kimberly Jessup Ripberger Partner, Assurance Practice Area Leader, CPA
Kimberly is an assurance partner at our firm with over 16 years in public accounting. Her previous experience included working in Industry in process improvement and project management. She works primarily with clients involved in the governmental, non-profit and affordable housing industries, including tax credit properties, U.S. Department of Housing and Urban Development, and […]