IRS Grants Extra Time for Opportunity Zone Investments

June 9, 2020

The IRS is giving investors extra time to reinvest capital gains into a qualified opportunity zone fund.

Typically, investors have 180 days from when they receive a capital gain to reinvest the money into a qualified opportunity fund. In a statement late last week, the IRS extended that period. For example, those whose 180-day period would have ended between April 1 and December 30 now have until Dec. 31 to reinvest any proceeds.

Qualified opportunity zones offer taxpayers an incentive to redeploy their capital gains into revitalizing distressed communities. The longer they invest in an opportunity zone, the bigger their tax incentive. If they hold the new investment for at least 10 years, they won’t owe taxes on any of the fund’s appreciation when they sell. The program was created by the Tax Cuts and Jobs Act of 2017.

As of April 30, more than $10 billion has been invested into 406 qualified opportunity funds—a jump from $790 million that had been invested in May 2019.

But the COVID-19 pandemic has prompted investors to slow their purchases. “What I have seen is that people are focused on making sure it’s still a good underlying investment,” Richard LaFalce, partner at Morgan Lewis in Washington, D.C., told CNBC. “There were certain investors who were up against the clock on getting the money invested. They were a little more cautious and choosy on the managers they went with. That’s the overall sentiment in the market, ‘Let’s slow down and be conscientious about how we’re deploying capital.’”