Foreign Investors Investing in U.S. Real Properties in the Opportunity Zone

Under the new Qualified Opportunity Zone (“QOZ”) tax regime, U.S. taxpayers can defer tax on capital gain on disposition of investment until 2026 if the proceeds from the disposition is invested in the qualified opportunity zone businesses or stocks (“Opportunity Fund”) within 180 days. The deferred capital gain will be taxed at a reduced rate if the investment in the Opportunity Fund is held for a minimum of five years.  Additionally, any appreciation in the Opportunity Fund investment is subject to zero tax if the investment is held for at least 10 years.

Generally, foreigners invest in U.S. real properties are subject to the Foreign Investment in Real Property Tax Act (“FIRPTA”).  The FIRPTA subjects foreign sellers of U.S. real properties or interest to a 10% withholding on the amount of gross proceeds from the disposition, and essentially treats a foreign person’s gain from the sale of a U.S. real properties or interest as effectively connected income (income subject to U.S. taxation).

According to the newly released regulations under IRC section 1400Z-2, the benefits of the Opportunity Zone program are also available to foreign persons participating in the Opportunity Zone Program – foreigners invested in the Opportunity Zone businesses or stocks can also avoid tax on any appreciation in the Opportunity Fund investment by meeting the investment holding period requirement.

U.S. Department of the Treasury provides a map showing designated qualified opportunity zones (“QOZs”).  Certain parts of the greater area of Los Angeles and San Diego have been added to the QOZs, and the program has been receiving increasing attention. To access the map, click the link below.  To view all designated QOZs, click on the “Layers” tab on the menu on the right-hand side of the screen. Select “Opportunity Zone Tract” and unselect “2011-2015 LIC Census Tract,” and zoom in to a specific area on the map. Designated QOZs will appear in blue. (Please note that if other layer options are selected, it will change the colors of the tracts.)

https://www.cims.cdfifund.gov/preparation/?config=config_nmtc.xml