NEW RULES:
OPERATING
BUSINESS INVESTMENT
OZ Business investment is expected to accelerate due to clarifications and improvements:
o
Leased Property
: Leased property qualifies as Qualified Opportunity Zone Business Property, bringing additional flexibility for operating businesses. In general, leased property does not need to satisfy the “original use” requirement, and not required to be “substantially improved” by the OZ Fund or OZ Business.
o
Original Use Test
: Original use of acquired tangible property commences when property is first placed in service in the Qualified Opportunity Zone (QOZ).
o
Location Requirements
: New safe harbors and a facts-and-circumstances test are provided for determining whether at least 50% of a QOZ Business’s income is derived from a trade or business in a Qualified Opportunity Zone.
o
Working Capital Safe Harbor:
The 31-month working capital safe harbor now applies to both QOZ real estate investments and QOZ business investment, which provides time for the “development of a trade or business” without violating the 90% and 70% testing requirements.
REAL PROPERTY INVESTMENT
The new regulations also bring key improvements for property investment:
o
Vacant Buildings:
If a building has been vacant for at least five continuous years before being purchased by an OZ Fund or OZ Business, then the building will not require “substantial improvements” to satisfy the “original use” requirement
.
o
Raw Land:
Unimproved land does not need to be “substantially improved,” though the property will not be eligible for OZ Property treatment if the OZ Fund does not intend on improving the land (and is merely being held for investment).
