Extensions for Qualified Opportunity Zone Deadlines during COVID-19 Pandemic
As the COVID -19 pandemic continues to instill uncertainty throughout the country, real estate investors involved in qualified opportunity zones (QOZs) have received some relief regarding one of two key deadlines. Until recently, these deadlines jeopardized building projects that are currently suspended due to state mandated shutdowns. Additionally, developers are faced with disruption throughout their supply chains and difficulty in obtaining building permits as local government agencies remain closed.
On April 10, 2020, the IRS issued Notice 2020-23 that included extending the 180-day deadline for investors to reinvest their capital gains into qualified opportunity funds (QOF) to July 15, 2020. For this automatic extension to apply, a taxpayer’s 180-day deadline must fall between April 1, 2020 and July 15, 2020.
Another important deadline for QOFs that has not been commented on by the IRS or Treasury Department is the requirement for the QOF to hold at least 90% of its assets in a qualified opportunity zone (QOZ). If this 90% threshold fails on a testing date, the QOF could face severe consequences with penalties. However, there are regulations that provide relief to cure a defect that prevents the QOF from meeting the 90% threshold. Currently, there is a six-month period for which the QOF can attempt to cure the defect that caused the entity to fail. This six-month window to alleviate the defect can only be utilized once by the QOF. In addition to the six-month cure period, under Sec. 1400Z-2(f)(3), a qualified opportunity fund can assert a defense of reasonable cause if the QOF becomes subject to a penalty for failure to satisfy the 90% investment standard due to circumstances beyond its control.
As new updates are released from the IRS and Treasury Department, Schneider Downs will continue to monitor all developments related to qualified opportunity zones.
Please contact your Schneider Downs tax advisor if you have any questions or would like to discuss the provisions of the CARES Act and or the Families First Coronavirus Response Act.
You’ve heard our thoughts… We’d like to hear yours
The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].
Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.