On April 20, 2018, Governor Tom Wolf submitted to U.S. Treasury his list of designated Opportunity Zone sites for Pennsylvania. To date, 18 states and territories—including Arizona, California, Colorado, Georgia, Idaho, Kentucky, Michigan, Mississippi, Nebraska, New Jersey, Oklahoma, South Carolina, South Dakota, Vermont and Wisconsin, as well as American Samoa, Puerto Rico and the U.S. Virgin Islands—have filed for and received approval of their sites. Pennsylvania has now followed suit and submitted its list for approval. Previously, we discussed Opportunity Zones in our Alerts dated March 1 and April 10, 2018.
Designations are approved for 10 years and permit investors to defer tax on any prior gains until no later than December 31, 2026, so long as the gain is reinvested in a Qualified Opportunity Fund. A Qualified Opportunity Fund is an investment vehicle that is organized to make investments in the zones designated above as Qualified Opportunity Zones. Note that while we are awaiting draft regulations, which are anticipated within the next 60 days (i.e., by June 30, 2018), it appears that if investors hold their investments in the Opportunity Fund for at least 10 years, they would be able to increase its basis to that of the fair market value of the investment on the date it is sold. In other words, their appreciation in the value of the asset thereafter would be tax-free.