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LEGAL ADVISORY FROM RAC NYSCAR AFFILIATE MEMBER, HARRIS BEACH PLLC: Opportunity Zones Could Spur Private Investment in Low Income Areas

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The latest tax reform passed in the Tax Cuts and Jobs Act (TCJA) created a new incentive which will impact real estate development in low-income communities by creating "Qualified Opportunity Zones."[1] The impact of these Qualified Opportunity Zones will be felt by municipalities, businesses and investors.

Impact on Municipalities

Under this new law, the Governor will nominate roughly 500 population census tracts as Qualified Opportunity Zones. These census tracts must either be located within a "low income community"[2] or be contiguous with a low income community. If the nominated census tract is contiguous with a low income community, the median family income in the census tract can be no more than 125% the median family income in the low income community. The governor is limited in the number of census tracts he can nominate, with the number of nominations being limited to 25% of all low income communities in the state and only 5% of these nominations can be census tracts contiguous with low income communities. With over 2,000 eligible census tracts in New York state, this will undoubtedly create a great deal of lobbying and politicking from local municipalities across the state in effort to get their low income communities nominated as a Qualified Opportunity Zones.

Communities that are designated as Qualified Opportunity Zones will benefit from the requirement that 90% of the assets in a "Qualified Opportunity Fund"[3] must be invested in "Qualified Opportunity Zone Property,"[4] which includes businesses and properties located in Qualified Opportunity Zones. As a result, this program should inject some much needed capital into low income communities. The nomination process will be handled by Empire State Development and its regional offices. The governor must make nominations for Qualified Opportunity Zones by April 20, 2018 and local regional economic development councils will make their recommendations of census tracts to the governor on March 30, 2018.

For more information regarding the Empire State Development nomination process, please contact Julie Marshall, Manager of Economic Development, 585-419-8653, or visit

Impact on Businesses

At least 90% of the assets in a Qualified Opportunity Fund must be Qualified Opportunity Property. Qualified Opportunity Property includes stock, partnership interests and tangible property of Qualified Opportunity Zone Businesses. A business will qualify as a Qualified Opportunity Zone Business if substantially all of its tangible property, either owned or leased, is Qualified Opportunity Zone Business Property [5] and the business meets the statutory requirements of a Qualified Opportunity Zone Business. Qualified Opportunity Zone Business property either owned by a Qualified Opportunity Fund or a Qualified Opportunity Zone Business must be improved after it is purchased, either for a use unique to the business or fund or, if the use is to remain the same as it was before the property was purchased, the business or fund must make additions to the property, which result in an increase in the owner's basis greater than the adjusted basis when the property was purchased. This will ensure that Qualified Opportunity Funds and businesses are using the new investments to improve these low income communities.

This asset requirement should spark strong investments by Qualified Opportunity Funds in corporations and domestic partnerships that qualify as Qualified Opportunity Zone Businesses. This will incentivize businesses to grow and develop real estate in these Qualified Opportunity Zones in order to qualify for these investments. As discussed later in this article, the Qualified Opportunity Funds should see substantial investments from both individuals and corporations because of the capital gains savings for investing in these Qualified Opportunity Funds.

Impact on Investors

Investors who sell or exchange property to an unrelated party can defer a payment of capital gains on such a sale or exchange if the capital gains are invested in a Qualified Opportunity Fund within 180 days of the transaction. [6] When the investment is first made the investor's basis will be zero. However, if the investment is maintained in the Qualified Opportunity Fund for 5 years, the investor's basis will increase by 10% of the capital gains which were deferred. If the investment is kept in the Qualified Opportunity Fund for an additional two years, 7 years total, the basis will increase by another 5% of the original capital gains which were deferred. There will be a recognition event, resulting in capital gains to the investor on the first of the following dates: (1) the date the investment is sold or liquidated or (ii) December 31, 2026.[7] When this recognition event occurs, the capital gains will be owed by the investor in an amount equal to the amount deferred by the original investment reduced by any basis earned for keeping the investment in the Qualified Opportunity Fund for 5 and/or 7 years.[8] If after recognizing the capital gains, reduced by any basis gained, an investor keeps the investment in the Qualified Opportunity Fund for 10 years or longer, the investor will not recognize any additional capital gains if it decides to sell or exchange its investment. If an investment is kept in a Qualified Opportunity Fund for 10 or more years, the basis for that investment becomes the fair market value of the investment on the day the investment is sold or exchanged. This means that an investor can defer payment of any capital gains until the recognition event, pay a reduced amount of capital gains on the recognition event, and continue to profit from this investment without any additional tax liability if the investment is maintained for 10 or more years in the Qualified Opportunity Fund.

An example of the capital gains deferment and savings can be found below:

If an investor has $40 million in capital gains from a sale, the investor can defer recognition of the $40 million in capital gains if the $40 million is invested in a Qualified Opportunity Fund within 180 days of the sale. When the investment is made, the basis will be $0. However, if the investment is maintained in the Qualified Opportunity Fund for 5 years, the investment will receive an increase of its basis equal to $4 million (10% of the original investment). If the investment is maintained for an additional 2 years, the investment's basis will increase to $6 million (15% of the original investment). On the recognition event, the investor will recognize capital gains on $34 million, instead of the original $40 million. If the investment is maintained for 10 or more years, the basis of the investment becomes its fair market value on the day it is sold. If the investment has grown over the 10 years it was maintained in the Fund, say to $50 million, the investor will not recognize any additional capital gains when the investment is sold. When the investment is sold for $50 million after 10 years, the investor would have only recognized capital gains on $34 million of the investment (the amount paid on the recognition event).

This capital gains deferment and adjusted basis for long term investments should attract many investors who are seeking to defer and reduce any capital gains it may incur from a sale and are seeking to avoid incurring capital gains on long term investments. This incentive should create a large fund for financing Qualified Opportunity Zone Businesses looking to develop projects in low income communities.

The Treasury Secretary is granted with the authority to create necessary or appropriate regulations for these Qualified Opportunity Zone programs. Once such regulations are enacted, an updated legal alert outlining the effect of any future regulations will be provided.


[1] 26 U.S.C. § 1400Z-1(a).

[2] As defined in 26 U.S.C. § 45D(e); see 26 U.S.C. § 1400Z-1(c)(1).

[3] As defined in 26 U.S.C. § 1400Z-2(d).

[4] As defined in 26 U.S.C. § 1400Z-2(d)(2).

[5] Qualified Opportunity Zone Business Property is defined as: (i) property that was acquired by the Qualified Opportunity Zone Business after 12/31/2017; (ii) the property's original use began with the purchase by the Qualified Opportunity Zone Business or it substantially improved the property; and (iii) during the Qualified Opportunity Zone Business' holding of the property, substantially all of the property's use was within a Qualified Opportunity Zone. 26 U.S.C. § 1400Z-2(d)(3)(A)(i).

[6] 26 U.S.C. § 1400Z-2(a)(1).

[7] 26 U.S.C. § 1400Z-2(b)(1).

[8] 26 U.S.C. § 1400Z-2(b)(2)(A).

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LEGAL ADVISORY FROM RAC NYSCAR AFFILIATE MEMBER, HARRIS BEACH PLLC: Governor's Proposed Suspension of Tax Credits Could Stall Real Estate Development

Governor Cuomo's recently released Executive Budget may not be well received amongst those planning on redeveloping urban areas, restoring historic structures, remediating contaminated real property or proposing affordable housing developments. Part S of Revenue Article VIII of the FY 2019 Executive Budget provides that a taxpayer's ability to claim certain tax credits is deferred for tax years 2018, 2019 and 2020, to the extent that those credits exceed $2 million per tax year.

The 34 tax credits proposed to be effected by Part S include:

  • brownfield redevelopment tax credit
  • remediated brownfield credit for real property taxes
  • environmental remediation insurance credit
  • conservation easement tax credit
  • low income housing tax credit
  • credit for rehabilitation of historic properties
  • most empire zone tax credits
  • alternative fuels and electric vehicle recharging property credit
  • green building credit
  • biofuel production credit
  • clean heating fuel credit
  • credit for companies who provide transportation to individuals with disabilities
  • economic transformation and facility redevelopment credit

Numerous others tax credits are included. Not subject to Part S are tax credits relating to the film/movie production industry and the Excelsior Program. Continue Reading...


LEGAL ADVISORY FROM RAC NYSCAR AFFILIATE MEMBER, HARRIS BEACH PLLC:  Senate Version of Tax Bill Preserves Certain Development Tax Credits

The Senate Finance Committee advanced the Tax Cuts and Jobs Act on November 17, 2017, moving the tax reform legislation to the full Senate for consideration. The bill, originally introduced in October, marks the first effort in three decades to reform the Internal Revenue Code. Lawmakers have said its goal is to reduce taxes on the middle class, while growing jobs across the country. Several tax policy experts criticize the bill for its corporate tax cuts and a balloon plan they believe will ultimately cost the middle-class more in ten years.

Of particular note is that the Senate version includes the retention of the following development tax credit programs:

  • the new markets tax credit (NMTC) through 2019 in its current form without change
  • interest-free private activity bonds in its current form, which bonding help finance more than 50% of affordable low income rental housing each year
  • the 9% allocated low-income housing tax credit (LIHTC)
  • the 20% historic tax credit (HTC) of qualified rehabilitation expenditures, with one change from current law: rather than claiming the HTC 100% in the year at placed-in-service as under current law, the HTC would be claimed ratably over 5 years instead of being.  While the HTC would be retained, the ratable entitlement to the HTC over 5 years would reduce HTC pricing by an investor's internal rate of return (time value) requirement.

The full Senate is expected to take up this bill after the Thanksgiving break.

LEGAL ALERT FROM RAC NYSCAR AFFILIATE MEMBER, HARRIS BEACH PLLC:  The Impact of the Tax Cuts and Jobs Act Provisions on Tax-Exempt Bonds

On November 2, 2017, the U.S. House of Representatives Ways and Means Committee released the Tax Cuts and Jobs Act (the "Bill"). Among what is being called the "biggest transformation of the tax code in more than thirty years" are the following proposed changes to the provisions of the tax law that pertain to tax-exempt bonds: (i) the termination of the ability to issue qualified private activity bonds; (ii) the elimination of the ability to issue advance refunding bonds; (iii) the repeal of the authorization to issue tax credit bonds; and (iv) a prohibition on issuing tax-exempt bonds to finance professional stadiums.

Termination of Ability to Issue Qualified Private Activity Bonds

Under current law, interest on "qualified private activity bonds" is excluded from gross income. However, as proposed under the Bill, no qualified private activity bond can be issued after December 31, 2017. This means that the following types of tax-exempt bonds could no longer be issued: (i) qualified 501(c)(3) bonds, which provide tax-exempt financing for qualifying capital projects undertaken by 501(c)(3) organizations, such as colleges, hospitals and other health-care facilities, senior housing facilities, libraries, private schools and museums, among others; (ii) exempt facility bonds, which provide tax-exempt financing for, among other types of projects, residential rental projects (e.g., affordable or low-income housing), airports, docks and wharves, mass commuting facilities, facilities for the furnishing of water, sewage facilities and solid waste disposal facilities; and (iii) qualified small issue bonds, which provide tax-exempt financing for manufacturing facilities.  Continue Reading ...


New York state is attempting to move closer towards its goal of fifty percent renewable energy production with an announcement by the New York State Energy Research and Development Authority (NYSERDA) that it has identified more than one million acres of offshore area along the south shore of Long Island for potential development. The proposed offshore area has the potential to generate 2,400 megawatts of energy by 2030, enough to power 1.2 million homes.[1]

After a significant period of research, planning and consultation with commercial fisherman, NYSERDA has released recommendations to the Federal Bureau of Ocean Energy Management (BOEM), which identifies four large offshore areas suitable for the creation of windfarms, as well as a written request from New York State Governor Andrew M. Cuomo for expedited approval from federal regulators to begin bidding for leases. The proposed windfarms are a significant development in green energy production along Long Island and would dwarf the recently approved Montauk Point wind farm, currently under development by Deepwater Wind, which is expected to generate 90 megawatts of power by 2022.[2]  Continue Reading ...

LEGAL ALERT FROM RAC NYSCAR AFFILIATE MEMBER, HARRIS BEACH PLLC: U.S. DOT Proposes Rules to Eliminate Duplication of Environmental Reviews

On September 28 and 29, 2017, the U.S. Department of Transportation ("DOT") published Notices of Proposed Rulemaking to commence a public comment period on proposed regulations governing DOT's Program for Eliminating Duplication of Environmental Reviews, established by Section 1309 of the Fixing America's Surface Transportation Act ("FAST Act").  Section 1309 directed the U.S. Secretary of Transportation to establish a pilot program authorizing up to five states to conduct environmental reviews and provide approvals for projects utilizing state environmental laws and regulations, rather than subjecting such projects to the review process of the National Environmental Policy Act ("NEPA"). 

The FAST Act, signed into law by President Obama on December 4, 2015, was the first federal law in over a decade to provide long-term funding certainty for surface transportation infrastructure planning and investment.  It authorized $305 billion over fiscal years 2016 through 2020 for various critical transportation projects.  Continue Reading ...



On September 5, 2017, the New York State Department of Environmental Conservation ("DEC") filed a Notice of Adoption for a comprehensive revision and reorganization of the 6 NYCRR Part 360 series of regulations - better known as the Solid Waste Management Regulations.  The regulations in the new Part 360 series provide the authority by which the state sets design standards and operational criteria for all solid waste management facilities and activities.

The revisions streamline and reduce regulatory burdens for entities while strengthening environmental protections, and are meant to "reflect the DEC's experience in implementing [the] regulations" since their last major revision took place in 1992.  DEC Commissioner Basil Seggos explains: "These final regulations incorporate public comments we received and will ensure New York State remains a leader in protecting our communities and natural resources through enhanced recycling and waste management."

One of the most obvious changes to the regulations is in its structure: the revisions include a complete reformatting of Part 360.  The laws are reorganized into a Part 360 series containing specific waste topics enumerated as Parts 360-369, making it less burdensome to revise specific sections. Continue Reading ...

LEGAL ADVISORY FROM RAC NYSCAR AFFILIATE MEMBER, HARRIS BEACH PLLC:  Drones Deployed to Help Protect the Environment and Respond to Emergencies

The New York State Department of Environmental Conservation recently announced that it has deployed twenty-two drones throughout New York state to assist with environmental issues and in emergency response situations. 

The DEC anticipates using the drones at stations across the state, including Long Island, the New York City metropolitan area, the Capital District, the Adirondacks, and in Central and Western New York.

Basil Seggos, the Commissioner of the DEC, stated that "[t]he use of drone technology will help us do our jobs better and faster while saving taxpayer dollars. We live in a changing world with technological advances being made at an exponential rate, and UAVs give us a safe and efficient way to collect and analyze data, assess threats to the environment, and quickly respond to emergencies. This technology is helping DEC with everything from petroleum spills and wildlife surveys to search and rescue missions, forest fires, and natural disasters."

The DEC has previously used drone technology to survey potential oil spills in the Hudson River, and to assist firefighters extinguishing a grass fire in Steuben County.

The full announcement is available:

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