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Opportunity Zones pose questions for valuation professionals.

The Appraisal Institute recommends that its professionals pay close attention to investment trends associated with the Opportunity Zones that were created through the tax reform legislation passed in late 2017. The U.S. Department of the Treasury has certified 8,700 Opportunity Zones, a process performed in conjunction with state and local government agencies.

Opportunity Zones are designed to spur economic development by providing tax benefits to investors by allowing them to defer tax on any prior gains invested in a Qualified Opportunity Fund until the date on which the investment is sold or exchanged, or until Dec. 31, 2026--whichever comes first. There is a 10 percent exclusion of the deferred gain for QOF investments held for more than five years. When held for more than seven years, the exclusion is 15 percent, and when held for 10 or more years, the investor is eligible for a permanent exclusion from taxable income of capital gains from the sale or exchange of an investment.

The rules and regulations for this economic development tool are trickling out, and valuation-related questions are materializing as market activity within Opportunity Zones begins. One issue could involve the use of a sale from outside an Opportunity Zone as a comparable for one inside an Opportunity Zone, and vice versa. Additionally, data lags may necessitate fully informed market condition adjustments. Appraisers likely also will be asked to segregate building and land values for tax planning purposes.

> Read the IRS Q&A at

> Find the Treasury Department's list of Opportunity Zones at

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Publication:Valuation Magazine
Date:Jan 1, 2019
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