Scarinci Hollenbeck, LLC, LLCScarinci Hollenbeck, LLC, LLC

Firm Insights

The Notion of Qualified Opportunity Zone Property

Author: Scarinci Hollenbeck, LLC

Date: April 29, 2019

Key Contacts

Back

Parties Interested in Participating in New Jersey’s Opportunity Zone Program Should Understand What is Considered a Qualified Opportunity Zone Property

Businesses seeking to participate in the Opportunity Zone Program must first understand the requirements in order to protect their interests. While the regulations are still evolving, the U.S. Tax Cut and Jobs Act of 2017 and the U.S. Treasury’s proposed regulations both shed light on the meaning of the term “qualified opportunity zone property” (“QZP”).

The definition is important given that qualified opportunity funds (QOF) must hold at least 90 percent of their assets consisting of either newly issued stock, partnership interests, or business property in opportunity zone property.

Qualified Opportunity Zone Business Property

Tangible property must meet several requirements to qualify as QZP. First, the property must be tangible.  Second, the property may not be acquired from a related party or via decedent or gift.  Additionally, the original use of the property must commence with the QOF investing in the property. Alternatively, the QOF must “substantially improve” the property within 30 months of the date of acquisition. Finally, during “substantially all” of the period during with the QOF holds the property, “substantially all” of the property’s use must be in a QOZ.

Non-Eligible Property

Properties used for certain types of businesses, referred to as “sin businesses” are not eligible as QOZ properties.  Sin businesses include private or commercial golf courses, country clubs, massage parlors, hot tub facilities, sun tanning salons, racetracks or other facilities used for gambling, or stores for which the principal business is the sale of alcoholic beverages for consumption off premises (liquor stores).

Substantial Improvement Test

Under the Treasury’s proposed rules,  QOZ business properties are considered having been substantially improved by a QOF if the taxpayer doubles the property’s adjusted basis after purchase and during any 30-month period while the QOF holds the property.

Notably, the Internal Revenue Service (IRS) advised in Rev. Rul. 2018-29 that land does not need to satisfy the substantial improvement or original use test to qualify as opportunity zone business property.  In addition, the value of land is not factored when assessing if a building has been substantially improved.

Original Use Test

In their proposed regulations, the Treasury and IRS did not define the term “original use,” but rather sought comments on what metrics would be appropriate for determining whether tangible property has “original use” in an opportunity zone.  The agencies posed the following questions:

Should the use of tangible property be determined based on the property’s physical presence within an opportunity zone, or based on some other measure? What if the tested tangible property is a vehicle or other movable tangible property that was previously used within the opportunity zone but subsequently acquired from a person outside the opportunity zone? Should some period of abandonment or under-utilization of tangible property erase the property’s history of prior use in the opportunity zone?  If so, should such a fallow period enable subsequent productive utilization of the tangible property to qualify as “original use”? Should the rules appropriate for abandonment and underutilization of personal tangible property also apply to vacant real property that is productively utilized after some period? If so, what period of abandonment, underutilization, or vacancy would be consistent with the statute?

“Substantially All” Requirement

In its proposed rules, the Treasury did not define the meaning of “substantially all” in the regulation that to qualify as a QOF,  substantially all of a partnership’s or corporation’s tangible property owned or leased must be qualified opportunity zone property. This issue is expected to be addressed in the next round of regulations.

Safe Harbor

The Treasury’s proposed opportunity fund rules include a safe harbor provision for QOFs that hold equity interests in QOZ businesses that acquire, construct, or rehabilitate tangible business property, which includes both real property and other tangible property used in a business operating in an opportunity zone.  The safe harbor allows QOZ businesses to treat cash as a qualifying asset for the purposes of the 90% asset test for a period of up to 31 months.  To do so, businesses must satisfy the following conditions:  (i) a written plan must be in place that identifies the financial property as property held for the acquisition, construction, or substantial improvement of tangible property in the opportunity zone (ii) there must be a written schedule consistent with the ordinary business operations of the business that the property will be used within 31-months; and (iii) the business must substantially comply with the schedule.

Exploring Opportunity Zone Investments

Time is of the essence for entities seeking to reap the full benefits of the Opportunity Zone Program.  Scarinci Hollenbeck and its diverse team of affordable housing, real estate, tax and corporate attorneys stand ready to help New Jersey investors navigate the new program and realize its benefits.  To discuss potential opportunities for your business, we encourage you to contact us today.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact Stephanie Edelstein,Jeff Cassin, or the Scarinci Hollenbeck attorney with whom you work, at 201-806-3364.

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Scarinci Hollenbeck, LLC, LLC

Related Posts

See all
What to Do If You Are Impacted by a Retailer Bankruptcy Part 2 post image

What to Do If You Are Impacted by a Retailer Bankruptcy Part 2

Over the past year, brick-and-mortar stores have closed their doors at a record pace. Fluctuating consumer preferences, the rise of online shopping platforms, and ongoing economic uncertainty continue to put pressure on the retail industry. When a retailer seeks bankruptcy protection, a myriad of other businesses are often impacted. Whether you are a supplier, customer, […]

Author: Brian D. Spector

Link to post with title - "What to Do If You Are Impacted by a Retailer Bankruptcy Part 2"
The Current Administration's Proposals for the Financial Services and Banking Industries Will Affect Your Business post image

The Current Administration's Proposals for the Financial Services and Banking Industries Will Affect Your Business

Since his inauguration two months ago, Donald Trump’s administration and the Congress it controls have indicated important upcoming policy changes. These changes will impact financial services policies and priorities. The changes will particularly affect cryptocurrency, as well as banking rules and regulations. Key Regulatory Changes in Cryptocurrency For example, in the burgeoning cryptocurrency business environment, […]

Author: Dan Brecher

Link to post with title - "The Current Administration's Proposals for the Financial Services and Banking Industries Will Affect Your Business"
Tips for Commercial Landlords Impacted by Wave of Retailer Bankruptcies Part 1 post image

Tips for Commercial Landlords Impacted by Wave of Retailer Bankruptcies Part 1

The retail sector has experienced a wave of bankruptcy filings over the last year. Brick-and-mortar businesses in financial distress include big-name brands like Big Lots, Party City, The Container Store, and Vitamin Shoppe. When large retailers seek bankruptcy protection, they are not the only businesses impacted. Landlords can be particularly hard hit. While commercial landlords […]

Author: Brian D. Spector

Link to post with title - "Tips for Commercial Landlords Impacted by Wave of Retailer Bankruptcies Part 1"
How Understanding Bankruptcy Trends Can Benefit Your Business post image

How Understanding Bankruptcy Trends Can Benefit Your Business

The bankruptcy legal landscape presents both challenges and opportunities for businesses navigating financial distress. Understanding current bankruptcy trends can help businesses make more informed and strategic decisions. Corporate Bankruptcy Filings Trending Upwards Bankruptcy filings continued to trend upwards in 2024. According to statistics released by the Administrative Office of the U.S. Courts, personal and business […]

Author: Brian D. Spector

Link to post with title - "How Understanding Bankruptcy Trends Can Benefit Your Business"
SEC Takes Actions Against Issuers for Failure to File Form D post image

SEC Takes Actions Against Issuers for Failure to File Form D

In December, the U.S. Securities and Exchange Commission (SEC) announced charges against two privately held companies for failing to file a Form D notice, which is generally utilized for exempt securities offerings. Here, the SEC’s enforcement sends a strong message: compliance with regulatory requirements is not optional and failure to comply can have significant consequences. […]

Author: Kenneth C. Oh

Link to post with title - "SEC Takes Actions Against Issuers for Failure to File Form D"
Redefining Labor Relations: NLRB's Pivot from Abruzzo’s Memoranda post image

Redefining Labor Relations: NLRB's Pivot from Abruzzo’s Memoranda

On February 14, 2025, the Office of General Counsel (OGC) of the National Labor Relations Board (NLRB) under Acting General Counsel William B. Cowen issued Memorandum 25-05, “New Process for More Efficient, Effective, Accessible and Transparent Case handling.” The Memorandum rescinds nearly all of the Memoranda issued by his direct predecessor, Jennifer Abruzzo, setting the […]

Author: Matthew F. Mimnaugh

Link to post with title - "Redefining Labor Relations: NLRB's Pivot from Abruzzo’s Memoranda"

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Sign up to get the latest from our attorneys!

Explore What Matters Most to You.

Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.

Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.

Let`s get in touch!

* The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!

Please select a category(s) below: