The Treasury Department and IRS rules governing how capital gains can be deployed to defer and reduce taxes are out, and it’s good news for investors, St. Louis lawyers said.
“The big takeaway is that we received a lot of good guidance providing the flexibility needed for investors,” said Jon Giokas, a Husch Blackwell partner and one of 22 lawyers involved in the firm's new practice group devoted to advising to high-net-worth individuals, family trusts, corporations, private equity funds, real estate developers and others on a new investment tool called Opportunity Zones.
“In almost every instance, the proposed regulations were more permissive than restrictive. They didn’t answer every question, but it was enough for investors to get moving,” said Joe Bredehoft, another Husch partner in the group.
Nancy Hawes, a partner and one of 10 lawyers at Polsinelli who form the core of the practice group at its various offices, agreed. “The regulations are taxpayer-friendly and did not diminish the policy behind the original legislative intent,” she said.
Lawyers and investors had been awaiting the regulations, issued Friday in 74 pages of detail, to clarify such things as what investors can use to invest in Opportunity Zones, how they can finance the investments using debt, and how much time they have to invest capital gains. The proposed regulations are open for public comment.
There are Opportunity Zones in Missouri and Illinois, including 27 in St. Louis. Here’s how the program works:
• Investors have 180 days after realizing capital gains to invest in an Opportunity Fund and defer taxes on the gains until Dec. 31, 2026.
• Investments of five years will result in the elimination of 10 percent of the tax liability on the capital gain.
• Investments of seven years result in the elimination of an addition 5 percent of the tax liability.
• Investments of 10 years in an Opportunity Zone project result in no taxes on the capital gains accrued as a result of the investments. You’d still pay taxes on the 85 percent, but post-investment appreciation is free.