How will IRS treat my property if it straddles an OZ and a non-OZ?
As I'm sure other responders have detailed, the regulations have some pretty generous rules for property straddling OZs. Before the proposed regulations came out, I was advising clients property had to be completely within an OZ, but the second round of guidance changed all that.
In the case of real property straddling multiple census tracts, where not all tracts are designated as QOZs, the proposed regulations provide that if the amount of real property based on square footage located within the QOZ is substantial as compared to the amount of real property based on square footage outside of the QOZ, and the real property outside of the QOZ is contiguous to part or all of the real property located inside the QOZ, then all of the property is deemed to be located within a QOZ.
I'm not a lawyer, but as I understand it, per the second round of guidance, if at least half the property by square footage is in the zone and the non-zone property is contiguous with the zone property, it's all deemed to be OZ property. The Arizona Commerce Authority covered this in a webinar about the second round of guidance last spring. You might find it helpful.
If you had the property prior to Opp Zones you’ll get no benefit in my view. If you sell it now and have cap gains you can employ 100 percent of capital gains into a fund. Not sure if I answered your question. You should check with your accountant.
There are rules for straddled property. You may have to allocate in and out of the fund.
There is a specific rule on this in the proposed regulation that can treat the property outside the zone as in the zone.
The regulations will pro-rate the benefits based on the percentage of land/property in and out of the zone.
Here is what the proposed regulations says about your question: (viii) Real property straddling a qualified opportunity zone. For purposes of satisfying the requirements in this paragraph (d)(5), when it is necessary to determine whether a qualified opportunity zone is the location of services, tangible property, or business functions, section 1397C(f) applies (substituting “Qualified Opportunity Zone” for “empowerment zone”). If the amount of real property based on square footage located within the Qualified Opportunity Zone is substantial as compared to the amount of real property based on square footage outside of the Qualified Opportunity Zone, and the real property outside of the Qualified Opportunity Zone is contiguous to part or all of the real property located inside the Qualified Opportunity Zone, then all of the property is deemed to be located within a Qualified Opportunity Zone.
If the amount of real property based on square footage located within the Qualified Opportunity Zone is substantial as compared to the amount of real property based on square footage outside of the zone, and the real property outside of the zone is contiguous to part or all of the real property located inside the zone, then all of the property would be deemed to be located within a qualified zone. Real property located within the Qualified Opportunity Zone should be considered substantial if the unadjusted cost of the real property inside a Qualified Opportunity Zone is greater than the unadjusted cost of real property outside of the Qualified Opportunity Zone.
DISCLAIMER:the information found on this website is intended to be general information; it is not legal or financial advice. Specific legal or financial advice can only be given by a licensed professional with full knowledge of all the facts and circumstances of your particular situation. You should seek consultation with legal and financial experts prior to participating in any aspect relating to Opportunity Zones. Posting a question on this website does not create an attorney-client relationship. All questions you post will be available to the public; do not include confidential information in your question.