What are the conditions of an opportunity zone investment

Opportunity Zone Investment Eligibility and Regulations

Federal Opportunity Zone Criteria

Investing in an Opportunity Zone (OZ) at the federal level involves specific criteria outlined in the U.S. tax code. The key eligibility requirements for property to be considered "qualified zone property" include:

1. Acquisition by Purchase:

- The property must be acquired by purchase (as defined in section 179(d)(2)) after the designation of the empowerment zone took effect.

2. Original Use:

- The original use of the property in the empowerment zone must commence with the taxpayer.

3. Substantial Use:

- Substantially all of the use of the property must be within an empowerment zone and in the active conduct of a qualified business by the taxpayer in that zone.

4. Substantial Renovations:

- If the property is substantially renovated by the taxpayer, it is considered to meet the acquisition and original use requirements. Substantial renovation is defined as additions to the basis of the property exceeding the greater of the adjusted basis at the beginning of a 24-month period or $5,000.

5. Sale-Leaseback Arrangements:

- For sale-leaseback situations, the property is treated as originally placed in service not earlier than the date it is used under the leaseback, provided the sale and leaseback occur within three months after the property was originally placed in service.

State-Specific Opportunity Zone Regulations

Each state may have additional criteria and regulations for investments in Opportunity Zones within their jurisdiction. For example:

- Oklahoma: The [2022 Oklahoma Statutes] require offering materials for qualified investments to include a statement regarding the potential recapture of tax credits if provisions of the Small Business Capital Formation Incentive Act are violated.

- South Carolina: The [South Carolina Code of Laws] specifies effective dates and conditions for capital investments and state withholding tax reductions related to investments in economic impact zones.

Conclusion

Investors interested in Opportunity Zones must adhere to the federal criteria for qualified zone property and be aware of any state-specific regulations that may apply. It is essential to ensure compliance with all requirements to maintain eligibility for the associated tax benefits.

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Sources:

2022 Oklahoma StatutesTitle 68. Revenue and Taxation§68-2357.63A. Requirements for funds invested in Oklahoma small business ventures - Recapture of credits - Use of near equity or subordinated debt - Offering material statement. 2023-12-20

26 U.S. Code § 1397D - Qualified zone property defined 26 U.S. Code Chapter 1 - NORMAL TAXES AND SURTAXES 26 U.S. Code Subchapter U - Designation and Treatment of Empowerment Zones, Enterprise Communities, and Rural Development Investment Areas 26 U.S. Code Part III - ADDITIONAL INCENTIVES FOR EMPOWERMENT ZONES 2023-12-11

South Carolina Code of Laws Unannotated Title 12 - Taxation CHAPTER 14 Economic Impact Zone Community Development Act of 1995 2023-12-01

Internal Revenue Bulletin: 2019-21 2019-05-19