NMHC on December 10 joined several real estate trade organizations asking House and Senate leaders to extend deadlines to take advantage of Opportunity Zone tax benefits. The multifamily industry has supported Opportunity Zones since their 2017 inception as part of the Tax Cuts and Jobs Act to spur investment in economically distressed areas.
Under current law, taxpayers after 2021 will no longer be able to take advantage of a 10 percent step-up in basis applicable to capital gains invested in Opportunity Funds for at least five years (an additional 5 percent step-up in basis applicable to capital gains invested for at least seven years expired at the end of 2019). This is a result of the statute requiring that such deferred capital gains be recognized at the end of 2026. Accordingly, the letter requests that lawmakers extend the recognition date by two years and allow deferral through the end of 2028. The letter notes that “these changes would help address the shortfall in new investment and job creation resulting from the pandemic and ensure that Opportunity Zones continue to act as a catalyst for economic development in struggling communities.”
Additionally, the letter supports additional improvements to Opportunity Zone tax incentives, including those to reduce the substantial improvement threshold to incentivize real estate rehabilitation. NMHC has long supported this provision to spur the preservation of multifamily housing that might otherwise be lost to obsolescence. Under current law, to qualify for Opportunity Zone benefits for renovations, the basis of an existing asset must be doubled excluding land. Although property that is added to and improves an asset can count toward this threshold, doubling the basis can still be a high hurdle. Accordingly, Congress should reduce the basis increase necessary to qualify a multifamily rehabilitation project for Opportunity Zone purposes. For more information on NMHC’s advocacy work related to Opportunity Zones, please visit our Opportunity Zones webpage.