The creation of the “opportunity zone provisions”—i.e., IRC §1400Z, through the passage of the Tax Cuts and Jobs Act of 2017, was widely received by industry pundits, professionals and even most laymen as being the biggest thing in real estate since the passage of the so-called “1031 transaction” rules. In a nutshell, the Opportunity Zone provisions serve as an incentive for taxpayer investment in low-income neighborhoods designated as “qualified opportunity zones” (QOZ) by combining the benefits of both tax deferral and permanent tax elimination. However, as most industry professionals quickly learned, the QOZ rules were difficult to understand and raised a number of hair-raising issues and questions.

To address these concerns, the U.S. Treasury has released two separate sets of proposed regulations over the last 12 months to address certain threshold issues associated with acquisitions of real property located in a QOZ (the “proposed regulations”). To be sure, the proposed regulations have done a good job addressing many of the statute’s significant concerns. However, there remain numerous potential traps for the unwary.