Gerald Thomas Explains Why Opportunity Zone Investments May Appeal to REITs

August 5, 2019

Amid the quickening pace of investment in “opportunity zones” ― a tax-savings economic development tool in the 2017 federal tax code rewrite ― McGuireWoods Atlanta partner Gerald Thomas II said in a recent interview that real estate investment trusts (REITs) may find them useful.

Investors now can defer or reduce capital gains taxes on the sale of investments in economically challenged areas the government has designated as opportunity zones. Billions of dollars have already been committed as capital for qualified opportunity zone (QOZ) projects.

REITs are among those considering the advantages of investing in QOZs, particularly as an alternative to so-called 1031 exchanges, Thomas, chair of the firm’s Tax & Employee Benefits Department, told REIT Magazine in a July 24 story. A 1031 exchange is a strategy in which investors defer capital gains taxes on investment property sales as long as “like-kind property” is purchased with the proceeds of the first property sale.

When it’s difficult to identify a like-kind property and a 1031 exchange may not work, a QOZ entity may be an appealing alternative, Thomas said. “When you look at the sheer depth and breadth of these opportunity zones across the country, it puts a lot of real estate in play for these investments,” he said.