Disaster Relief for Opportunity Zone Taxpayers in the Southeast
Earlier this year, we posted about the several designated disaster areas identified by the federal government to help victims affected by severe weather incidents and their impact on opportunity zone sponsors.
Last week, more disaster areas were designated for those impacted by hurricane Idalia. See the full designation here. Specifically, several taxpayers now have until February 15, 2024 to file certain business and income tax returns.
Disaster area declarations impact opportunity zones in a few ways. For example, a business making an election to self-certify as a Qualified Opportunity Fund needs to complete Form 8996 with its timely filed income tax returns. Similarly, taxpayers who are electing to defer recognition of capital gains must make the deferral election and include Form 8997 with their timely filed income tax returns. Both elections must be made on a timely filed return, so the recent filing relief provided for hurricane Idalia victims means that returns will be considered timely filed through February 15, 2024, and this includes the self-certification and capital gain deferral elections, as appropriate, provided the election is properly included in the income tax return filed by the adjusted due date.
Importantly, this disaster relief does not provide affected taxpayers with additional time beyond the statutory 180 days to make an investment in a Qualified Opportunity Fund, only additional time to file the election. Eligible capital gains still need to be invested in a Qualified Opportunity Fund within 180 days for the taxpayer to be eligible to make a deferral election.
Certain businesses located in opportunity zones which have been declared federal disaster areas may also be eligible for relief. A Qualified Opportunity Zone Business, or QOZB, is an entity which has been established for specific purposes set forth in the opportunity zone regulations. One such requirement is that a QOZB must maintain a written plan and written schedule to spend certain working capital (i.e. liquid cash and equivalents) within certain time frames, generally within 31 months from the date of receipt. This is commonly known as the Working Capital Safe Harbor. If a QOZB is located in a federally declared disaster area, then it may receive up to 24 additional months (beyond the original 31 months) to spend its working capital assets without violating the Working Capital Safe Harbor requirements. This additional time could be vital for a QOZB’s success in deploying capital within the requirements of the opportunity zone rules.
Navigating the opportunity zone rules is challenging, especially when the rules are altered by relief provisions such as these recently enacted. CLA’s OZ working group has the deep knowledge and experience to guide you as you navigate decisions concerning your opportunity zone investment or business.
Brian is a Signing Director in CLA's Real Estate industry group and has more than 15 years of experience working with real estate operators, land developers, commercial real estate companies, private equity funds, and general contractors. Brian is also part of CLA's Opportunity Zone working group, and leads a team providing compliance, consulting, and advisory services to opportunity zone investors, qualified opportunity funds, and qualified opportunity zone businesses.
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