On October 19, Treasury and the IRS released highly anticipatedregulatory guidance related to the Opportunity Zone program.GlobeSt.com asked Real Estate Roundtable President and CEOJeffrey DeBoer and Roundtable Senior VicePresident and Counsel Ryan McCormick to explain theproposed rules and their implications for the real estateindustry.

What is your main takeaway from the new Treasury regulations onOpportunity Zones?

DeBoer: The Treasury guidance is a clearindication the Administration is fully committed to an OpportunityZone program that spurs broad-based job creation and creates neweconomic opportunity for businesses, entrepreneurs, and residentsin low-income communities. The regulations help to implement theobjectives of the lawmakers who designed the program, such asSenator Tim Scott (R-SC). With the regulatory regime now takingshape, we foresee Opportunity Fund investors actively partneringwith local leaders and entrepreneurs on projects that both driveeconomic activity and respond to the needs of communities.

 What do the proposed regulations mean for realestate?

DeBoer: For real estate, the proposedregulations are unquestionably positive. They clarify key technicalquestions and open issues, and they should allow investments infunds and in underlying projects to go forward. While someimportant questions remain, we continue to believe that theOpportunity Zone program will be a powerful catalyst fortransformational real estate investment in these designatedlow-income areas.

Jeffrey DeBoer

There has been some uncertainty regarding the type of gain thatcan be deferred and invested in an Opportunity Fund and who iseligible to make such an investment. Do the regulations put thosequestions to rest?

DeBoer: The proposed regulations take the viewthat only capital gain can be rolled into an Opportunity Fund andqualify for the new tax benefits. Ordinary gain, such as incomesubject to depreciation recapture, income from the sale ofinventory, and income from the sale of intangible assets created bythe taxpayer, would not be eligible, even if it arises from thesale of a business or parcel of real estate. That may be undulyrestrictive, given the legislative language and underlying intent.Since only money from “gains” can be invested in qualifyingOpportunity Funds, that definition should be broad, not narrow, tomake the incentive as efficient as possible. On the positive side,capital gains will include short-term capital gain otherwiseineligible for a reduced rate. Presumably, the rule alsoencompasses REIT capital gain dividends. The gain cannot arise froma related party transaction. This is a sensible rule to ensure thatonly bona fide gain qualifies for the tax benefits.