It will be easier to invest in businesses and real estate in low-income communities throughout the U.S. now that the Trump administration has released rules for a tax break to encourage economic development in distressed areas.
Wall Street banks, private equity firms, real estate developers and others have been eagerly awaiting the regulations, which the administration says will spur $100 billion of investment into the more than 8,700 areas designated as "opportunity zones" in the 2017 federal tax overhaul.
The 169-page proposal give funds interested in these areas additional leeway to invest capital on a more flexible timeline, a Treasury official told reporters Wednesday. The rules also give investing funds a one-year grace period to sell assets and reinvest the proceeds, thus avoiding penalties intended to prevent funds from sitting on the cash.
The new Treasury regulations give funds six months from when they receive money to purchase assets that qualify for the special tax breaks. The rules also allow land and vacant buildings to be investments eligible for an opportunity zone fund, the Treasury official said.
While there's been a flood of interest in opportunity zones, many people have delayed investments to see if the rules make sense for the projects and businesses they have in mind. Skeptics of the provision will be looking for guardrails in the regulations to prevent investors from claiming a generous tax break for developments that do little to help the poor.
Investors are racing to meet deadlines in the law that require them to invest their capital gains income within 180 days of selling the stock or business.
The rules permit more flexibility to include more than one investment in a fund, the official said. Investors would like to create multiasset funds to reduce the risk of a single bad project wiping out any return. The rules allow investors to get special tax treatment if they've held their stake in the fund for at least 10 years, even if the fund didn't own the asset for a full decade, the official said.
Investors can also buy into a fund by directly purchasing an interest or buying another partner out.