The Internal Revenue Service unveiled proposed regulations Friday for what Treasury Secretary Steven Mnuchin says could be a $100 billion investment opportunity for real estate and businesses in distressed areas.
The rules provide investors with guidelines about how they can qualify for special tax breaks in so-called Opportunity Zones — underdeveloped areas where the U.S. government is trying to promote investment. They specify that only capital gains can qualify for the benefit and provide details on what types of entities can invest in Opportunity Zone funds, along with which projects qualify, a Treasury official said during a call with reporters.
Under President Donald Trump’s tax law, investors can take proceeds that would be subject to capital gains taxes — such as those from the sale of a business or stock — and put them into Opportunity Zone funds to defer and potentially reduce their capital gains taxes. They can also avoid taxes on the funds’ gains completely.
“This is something for people like those who were one of the first few hundred employees at Google or Twitter, and don’t want a boatload of money all tied up in the company’s stock,” said Victor Jaramillo, of counsel at law firm Caplin & Drysdale.
The idea is also popular among people already investing in real estate as a way to boost returns on low-income housing and commercial real estate projects by investing in riskier neighborhoods. There are roughly 8,700 opportunity zones throughout the U.S. spanning aging Rust Belt towns, low-income areas of major cities and rural swaths of the West.
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