Opportunity Zones Hype Overshadows Potential Pitfalls and Risks
March 26, 2019 | Beth Mattson-Teig | National Real Estate Investor
Dozens of Opportunity Zone funds are racing to capture a wave of private equity dollars seeking value-add investments that come with the added perk of a hefty break on capital gains taxes. The frenzy is creating a bit of a Wild West mentality that has some raising concerns about the potential dark side to Opportunity Zones.
Many view the new Opportunity Zone program created by the 2017 Tax Cuts & Jobs Act as having the potential to be the most significant federal community development initiative in U.S. history, with billions—perhaps trillions—of dollars in private equity targeting investment opportunities in low-income communities around the country. Yet there are still numerous questions, concerns and potential pitfalls that could rewrite that history.
One of the biggest frustrations surrounding Opportunity Zones is that the rules to date are somewhat ambiguous and the IRS and Treasury Department have been slow to release additional guidance on key issues for stakeholders who are chomping at the bit to move forward. “Everybody is waiting anxiously to see what the regulations will provide for so that they can actually execute,” says Andrew Charles, a partner at Kramer Levin Naftalis & Frankel LLP in New York City. “I think activity will pick up exponentially once the final regulations come out.” The guidance was delayed because of the government shutdown earlier this year, but it is expected to be released in late March or early April.
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