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Qualified Opportunity Zones: Working Capital Safe Harbor, Early Disposition of QOZ Real Estate Investments

Recording of a 90-minute premium CLE video webinar with Q&A

This program is included with the Strafford CLE Pass. Click for more information.
This program is included with the Strafford All-Access Pass. Click for more information.

Conducted on Friday, November 3, 2023

Recorded event now available

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This CLE webinar will discuss the latest developments in Qualified Opportunity Zones (QOZ), including the growing significance of working capital safe harbor (WCSH) plans during the start-up phase and beyond for a Qualified Opportunity Zone Business (QOZB). The panel will explore hot topics practitioners are currently experiencing when structuring QOZB joint ventures for acquiring, developing, and operating real estate, including the early disposition of QOZ investments and proposed new legislation.


In 2017, the Tax Cuts and Jobs Act was signed into law, creating QOZs to encourage private investment in businesses, projects, and commercial property located in designated census tracts. IRC Sections 1400Z-1 and 1400Z-2 allow real estate and other investors to defer current capital gains, significantly increase basis in long-term investments, and qualify for tax abatement by reinvesting capital gain proceeds in Qualified Opportunity Funds (QOFs). Qualified commercial property, businesses, and projects may use this program as a low-cost subsidy for growth.

Navigating the QOZ program can be tricky, especially at the outset of a project because of the numerous rules, requirements, and deadlines. The WCSH was introduced as a tool to help manage the requirements during the start-up phase in the context of a QOZB acquiring, developing, and operating real estate and allows for deployment of QOZ funds for up to 62 months to complete development. For a WCSF plan to provide relief from the strict requirements imposed on QOZBs, the plan must: (1) designate in writing the amount of funds available for the acquisition, construction, and/or substantial improvement of property in a QOZ; (2) provide a written schedule for the expenditure of the working capital assets; and (3) provide that the working capital assets will actually be used in a manner that is "substantially consistent" with the writing and written schedule.

Spiking inflation, rising interest rates, tightened lender restrictions, loss of investor confidence, and general economic uncertainty have resulted in a number of QOF sponsors considering the disposition of newly developed assets earlier than the required minimum holding period of 10 years. Many QOF sponsors incorrectly believe that if they reinvest the proceeds from the sale of a QOZ property in another QOZ property within 12 months after the sale of the first QOF investment, they escape gain taxation for their investors. However, an early sale prior to 10 years only works under limited circumstances and investors must carefully evaluate the tax and financial benefits of holding or divesting of investments in QOFs, disposing of property owned by QOFs, and the overall continuity strategies for their QOF investments.

Listen as our authoritative panel discusses the requirements of the WCSH and how QOZBs can take advantage of this useful tool. The panel will also discuss hot topics that practitioners are experiencing in 2023 when structuring QOZB joint ventures for the development of real estate and proposed new legislation and its impact on the future of QOZs' investment strategies.



  1. Overview of QOZs: a primer
    1. Legislative history: 2017 Tax Act and subsequent regulations
    2. Designation by QOZs by the states
    3. Types of investment: commercial real estate and operating businesses
  2. WCSH considerations
    1. Overview
    2. Complying with the three WCSH requirements
  3. Early disposition of QOZ investments
    1. Overview
    2. Post-acquisition gains recognized despite reinvestment
    3. Early sale without 1031 Exchange
    4. Early sale with 1031 Exchange
    5. Early disposition: combining Section 1202 and QOZ program benefits
  4. Proposed legislation
  5. Practical considerations and key takeaways


The panel will discuss these and other key issues:

  • What are the rules and tax benefits applicable to QOZ investments?
  • What are the WCSH requirements?
  • How does a QOZB take advantage of the WCSH?
  • What are the tax and financial consequences relating to the early disposition of QOZ investments?
  • What are the potential implications of proposed new legislation in the QOZ context?


Molotsky, Brad
Brad A. Molotsky

Duane Morris

Mr. Molotsky’s primary practice is focused in the areas of commercial leasing, acquisitions and divestitures,...  |  Read More

Scalio, Joseph
Joseph J. Scalio

Tax Partner

Mr. Scalio is KPMG’s Pennsylvania Business Unit Tax Leader in the Passthrough and Asset Management Practices,...  |  Read More

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