The long wait is over. IRS has issued final regulations on Qualified Opportunity Funds, nearly two years after the Opportunity Zone initiative was enacted into law as part of the 2017 Tax Cuts & Jobs Act.

Click here to read the complete draft of the final regulations.

The final regulations are a modification and merger of the first and second tranches of regulatory guidance and provide additional clarification on topics that remained unresolved after the first two sets of proposed regulation. In total, the notice is 544 pages in length.

IRS completed the final regulations and submitted them for review to the Office of Information and Regulatory Affairs (OIRA) on December 6. OIRA completed its review on December 17.

The final regulations do not officially take effect until they are published in the Federal Register. That publication is expected to be posted to FederalRegister.gov within the next week or two, most likely before the end of the year.

From IRS.gov:

… the final regulations provide additional guidance on how an entity becomes a QOF or QOZ business, and the requirement that a QOF or QOZ business engage in a trade or business. The final regulations retain the general approach of the proposed regulations but provide additional guidance and clarity to the rules regarding QOZ business property.

https://www.irs.gov/newsroom/irs-and-treasury-finalize-opportunity-zone-guidance

The Economic Innovation group released a statement in response to the final rules.

“These regulations provide much-needed clarity for communities and investors alike, and will facilitate stronger levels of investment across a range of local needs in designated communities,” said John Lettieri, president and CEO of EIG. “The final rules include several significant improvements designed to make it easier to use Opportunity Zones for the purposes Congress intended.”

Several Opportunity Zone experts chimed in on Twitter on Thursday afternoon, including Lettieri, Forbes tax writer Tony Nitti, EIG research director Kenan Fikri, Opportunity Zone consultant Jill Homan, Bloomberg Tax writer Lydia O’Neal, and Develop Advisors founder Steve Glickman:

A more detailed analysis is forthcoming, but early notables:
– aggregated substantial improvement test
– better rules re: 1231 gains
– much easier to invest in vacant properties and brownfields
– greater flexibility for startup businesses w/ working capital safe harbor

— John W Lettieri (@LettieriDC) December 19, 2019

A couple of quick notes on the final OZone regs people were waiting on:
1. Section 1231 gains can now be invested on a gross basis; i.e., you don’t have to go though the netting process first. So the 180 day period starts on the date of sale.
1/x

— Tony Nitti (@nittiaj) December 19, 2019

VERY preliminary take on the #OpportunityZones regs: on the real estate side, they now provide a massive impetus to clean up brownfields and blight and otherwise restore and reoccupy vacant property, truly making this a RE-investment incentive. Good news for cities, environment.

— Kenan Fikri (@kenanfikri) December 19, 2019

Final #OpportunityZone regulations big change: vacancy period to allow a building to qualify as original use reduced to 1 year with restrictions or 3 years. #OpportunityZones

— Jill Homan (@jillhoman) December 19, 2019

Final rules for the 2017 tax law’s #opportunityzone incentives are out: https://t.co/cPcIUNL7Pk

These modify and finalize the two sets of proposed rules released in October 2018 and April of this year. Treasury made quite a few investor-friendly changes.

— Lydia O’Neal (@LydsONeal) December 19, 2019

(1) An exciting way to end the year for the #OpportunityZones marketplace! 2020 will be the year that private investors & local governments come together to revitalize our America's distressed communities. IRS released the FINAL OZ res today. Quick thread. https://t.co/4D9om8F8Y4

— Steve Glickman (@StevenGGlickman) December 19, 2019

IRS tax forms and instructions pertaining to Opportunity Zone investing will be finalized and made available in January 2020.