‘‘(1) IN GENERAL.—A population census tract 
that is not a low-income community may be des-
ignated as a qualified opportunity zone under this 
section if— 
‘‘(A) the tract is contiguous with the low- 
income community that is designated as a 
qualified opportunity zone, and 
‘‘(B) the median family income of the tract 
does not exceed 125 percent of the median fam-
ily income of the low-income community with 
which the tract is contiguous. 
‘‘(2) LIMITATION.—Not more than 5 percent of 
the population census tracts designated in a State as 
a qualified opportunity zone may be designated 
under paragraph (1). 
‘‘(g) PERIOD FOR WHICH DESIGNATION IS IN EF-
FECT.—A designation as a qualified opportunity zone 
shall remain in effect for the period beginning on the date 
of the designation and ending at the close of the 10th cal-
endar year beginning on or after such date of designation. 
‘‘SEC. 1400Z–2. TEMPORARY CAPITAL GAINS DEFERRAL FOR 
GAIN INVESTED IN OPPORTUNITY ZONES. 
‘‘(a) IN GENERAL.— 
‘‘(1) MAXIMUM
AMOUNT
OF
GAIN.—Qualified 
capital gain from the sale or exchange to an unre-
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lated person of any asset held by the taxpayer and 
which the taxpayer elects the application of this sec-
tion shall be the amount by which the amount real-
ized on such sale or exchange exceeds— 
‘‘(A) the sum of— 
‘‘(i) the cost of any qualified oppor-
tunity zone asset acquired by the taxpayer 
during the 180-day period beginning on 
the date of such sale, plus 
‘‘(ii) the amount invested in a quali-
fied opportunity fund acquired by the tax-
payer during the 180-day period beginning 
on the date of such sale, reduced by 
‘‘(B) any portion of such cost and invest-
ment previously taken into account under this 
section. 
‘‘(2) AMOUNT
OF
GAIN
RECOGNIZED.—The 
amount recognized from the sale or exchange of an 
asset which is subject to paragraph (1) shall be the 
amount equal to the qualified capital gain multiplied 
by the same ratio as— 
‘‘(A) the excess of the total amount real-
ized on such sale or exchange over the sum of 
the amounts determined under clauses (A)(i), 
(A)(ii), and (B) of paragraph (1), bears to 
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‘‘(B) the total amount realized on such 
sale or exchange. 
‘‘(3) AMOUNT OF GAIN DEFERRED.—Except as 
provided by subsection (c), any amount of qualified 
capital gain not recognized by reason of paragraph 
(2) shall be recognized on the earlier of— 
‘‘(A) the date on which such qualified op-
portunity zone asset or investment with respect 
to which such qualified capital gain is allocated 
is disposed of, except to the extent an addi-
tional deferral is provided under paragraph (1) 
with respect to such disposition by reason of the 
acquisition of a qualified opportunity zone asset 
or investment in a qualified opportunity fund, 
or 
‘‘(B) December 31, 2025. 
‘‘(b) QUALIFIED OPPORTUNITY ZONE ASSET.—For 
purposes of this section: 
‘‘(1) IN GENERAL.—The term ‘qualified oppor-
tunity zone asset’ means— 
‘‘(A) any qualified opportunity zone stock, 
‘‘(B) any qualified opportunity zone part-
nership interest, and 
‘‘(C) any qualified opportunity zone busi-
ness property. 
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‘‘(2) QUALIFIED OPPORTUNITY ZONE STOCK.— 
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B), the term ‘qualified oppor-
tunity zone stock’ means any stock in a domes-
tic corporation if— 
‘‘(i) such stock is acquired by the tax-
payer after December 31, 2016, at its 
original issue (directly or through an un-
derwriter) from the corporation solely in 
exchange for cash, 
‘‘(ii) as of the time such stock was 
issued, such corporation was a qualified 
opportunity zone business (or, in the case 
of a new corporation, such corporation was 
being organized for purposes of being a 
qualified opportunity zone business), and 
‘‘(iii) during substantially all of the 
taxpayer’s holding period for such stock, 
such corporation qualified as a qualified 
opportunity zone business. 
‘‘(B) REDEMPTIONS.—A rule similar to 
the rule of section 1202(c)(3) shall apply for 
purposes of this paragraph. 
‘‘(3) QUALIFIED OPPORTUNITY ZONE PARTNER-
SHIP
INTEREST.—The term ‘qualified opportunity 
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zone partnership interest’ means any capital or prof-
its interest in a domestic partnership if— 
‘‘(A) such interest is acquired by the tax-
payer after December 31, 2016, from the part-
nership solely in exchange for cash, 
‘‘(B) as of the time such interest was ac-
quired, such partnership was a qualified oppor-
tunity zone business (or, in the case of a new 
partnership, such partnership was being orga-
nized for purposes of being a qualified oppor-
tunity zone business), and 
‘‘(C) during substantially all of the tax-
payer’s holding period for such interest, such 
partnership qualified as a qualified opportunity 
zone business. 
‘‘(4) QUALIFIED OPPORTUNITY ZONE BUSINESS 
PROPERTY.— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
opportunity zone business property’ means tan-
gible property used in a trade or business of the 
taxpayer if— 
‘‘(i) such property was acquired by 
the taxpayer by purchase (as defined in 
section 179(d)(2)) after December 31, 
2016, 
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‘‘(ii) the original use of such property 
in the qualified opportunity zone com-
mences with the taxpayer or the taxpayer 
substantially improves the property, and 
‘‘(iii) during substantially all of the 
taxpayer’s holding period for such prop-
erty, substantially all of the use of such 
property was in a qualified opportunity 
zone. 
‘‘(B) SUBSTANTIAL
IMPROVEMENT.—For 
purposes of subparagraph (A)(ii), property shall 
be treated as substantially improved by the tax-
payer only if, during any 30-month period be-
ginning after the date of acquisition of such 
property, additions to basis with respect to such 
property in the hands of the taxpayer exceed an 
amount equal to the adjusted basis of such 
property at the beginning of such 30-month pe-
riod in the hands of the taxpayer. 
‘‘(C) RELATED PARTY.—For purposes of 
subparagraph (A)(i), the related person rule of 
section 179(d)(2) shall be applied pursuant to 
paragraph (8) of this subsection in lieu of the 
application of such rule in section 179(d)(2)(A). 
‘‘(5) QUALIFIED CAPITAL GAIN.— 
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‘‘(A) IN GENERAL.—Except as otherwise 
provided in this subsection, the term ‘qualified 
capital gain’ means any gain recognized on the 
sale or exchange of— 
‘‘(i) a capital asset, or 
‘‘(ii) property used in the trade or 
business (as defined in section 1231(b)). 
‘‘(B) CERTAIN
GAIN
NOT
QUALIFIED.— 
The term ‘qualified capital gain’ shall not in-
clude any gain which would be treated as ordi-
nary income under section 1245 or under sec-
tion 1250 if section 1250 applied to all depre-
ciation rather than the additional depreciation. 
‘‘(C) RELATED
PARTY
TRANSACTIONS.— 
The term ‘qualified capital gain’ shall not in-
clude any gain attributable, directly or indi-
rectly, in whole or in part, to a transaction with 
a related person. 
‘‘(6) QUALIFIED
OPPORTUNITY
FUND.—The 
term ‘qualified opportunity fund’ means any invest-
ment vehicle organized as a corporation or a part-
nership for the purpose of investing in qualified op-
portunity zone assets that holds at least 90 percent 
of its assets in qualified opportunity zone assets, de-
termined— 
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‘‘(A) on the last day of the first 6-month 
period of the taxable year of the fund, and 
‘‘(B) on the last day of the taxable year of 
the fund. 
‘‘(7) QUALIFIED
OPPORTUNITY
ZONE
BUSI-
NESS.— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
opportunity zone business’ means a trade or 
business— 
‘‘(i) in which substantially all of the 
tangible property owned or leased by the 
taxpayer is qualified opportunity zone busi-
ness property, 
‘‘(ii) which satisfies the requirements 
of paragraphs (2), (4), and (8) of section 
1397C(b), and 
‘‘(iii) which is not described in section 
144(c)(6)(B). 
‘‘(B) SPECIAL
RULE.—For purposes of 
subparagraph (A), tangible property that ceases 
to be a qualified opportunity zone business 
property shall continue to be treated as a quali-
fied opportunity zone business property for the 
lesser of— 
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‘‘(i) 5 years after the date on which 
such tangible property ceases to be so 
qualified, or 
‘‘(ii) the date on which such tangible 
property is no longer held by the qualified 
opportunity zone business. 
‘‘(8) RELATED PERSONS.—For purposes of this 
subsection, persons are related to each other if such 
persons are described in section 267(b) or 707(b)(1), 
determined by substituting ‘20 percent’ for ‘50 per-
cent’ each place it occurs in such sections. 
‘‘(c) BASIS.— 
‘‘(1) IN GENERAL.—The basis of a qualified op-
portunity zone asset, and of an investment in a 
qualified opportunity fund, immediately after its ac-
quisition under subsection (a) shall be the amount 
determined under subsection (a)(1)(A), reduced by 
the amount recognized under subsection (a)(2). 
‘‘(2) ASSET HELD FOR 5 OR MORE YEARS.—Ex-
cept as provided by paragraph (3), the basis of the 
qualified opportunity zone asset, and of an invest-
ment in a qualified opportunity fund, determined 
under paragraph (1) shall be increased by an 
amount equal to— 
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‘‘(A) in the case that such asset is held by 
the taxpayer for 5 years, by 10 percent of such 
capital gain not recognized under subsection 
(a), and 
‘‘(B) in addition to the increase under sub-
paragraph (A), in the case that such asset is 
held by the taxpayer for 7 years, by 5 percent 
of such capital gain not recognized under sub-
section (a). 
‘‘(3) EXEMPTION
FROM
CAPITAL
GAINS
ON 
GAIN OF LONG-TERM INVESTMENTS.—In the case of 
the sale or exchange of a qualified opportunity zone 
asset, and of an investment in a qualified oppor-
tunity fund, held for more than 10 years, at the 
election of the taxpayer the basis of such asset or in-
vestment in the hands of the taxpayer shall be the 
fair market value of such asset or investment (as the 
cases may be) at the date of such sale or exchange. 
‘‘(4) DEFERRED RECOGNITION.—In the case of 
recognition of capital gain under subsection (a)(2), 
the basis of the qualified opportunity zone asset, or 
investment in a qualified opportunity fund, shall be 
increased by the amount of capital gain so recog-
nized. 
‘‘(d) APPLICABLE RULES.— 
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‘‘(1) IN GENERAL.—For purposes of this sec-
tion and except as otherwise provided in this section, 
rules similar to the rules applicable to deferred like 
kind exchanges under section 1031 shall apply ex-
cept that reinvestment in opportunity zone property 
need not require an intermediary party. 
‘‘(2) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary or ap-
propriate to carry out the purposes of this section, 
including— 
‘‘(A) rules requiring taxpayers to provide 
such information as the Secretary determines to 
be necessary or appropriate for the identifica-
tion of both the assets sold (including basis and 
sale price) and the assets acquired and invest-
ments made, and 
‘‘(B) rules to prevent abuse. 
‘‘(3) DECEDENTS.—In the case of a decedent, 
amounts recognized under this section shall, if not 
properly includible in the gross income of the dece-
dent, be includible in gross income as provided by 
section 691. 
‘‘(e) FAILURE OF QUALIFIED OPPORTUNITY FUND 
TO MAINTAIN INVESTMENT STANDARD.— 
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‘‘(1) IN GENERAL.—If a qualified opportunity 
fund fails to meet the 90 percent requirement of 
subsection (b)(6), the qualified opportunity fund 
shall pay a penalty for each month it fails to meet 
the requirement in an amount equal to the product 
of— 
‘‘(A) the excess of— 
‘‘(i) the amount equal to 90 percent of 
its aggregate assets, over 
‘‘(ii) the aggregate amount of quali-
fied opportunity zone assets held by the 
fund, multiplied by 
‘‘(B) the underpayment rate established 
under section 6621(a)(2) for such month. 
‘‘(2) SPECIAL RULE FOR PARTNERSHIPS.—In 
the case that the qualified opportunity fund is a 
partnership, the penalty imposed by paragraph (1) 
shall be taken into account proportionately as part 
of the distributive share of each partner of the part-
nership. 
‘‘(3) REASONABLE
CAUSE
EXCEPTION.—No 
penalty shall be imposed under this subsection with 
respect to any failure if it is shown that such failure 
is due to reasonable cause.’’. 
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(b) BASIS ADJUSTMENTS.—Section 1016(a) of such 
Code is amended by striking ‘‘and’’ at the end of para-
graph (36), by striking the period at the end of paragraph 
(37) and inserting ‘‘, and’’, and by inserting after para-
graph (37) the following: 
‘‘(38) to the extent provided in section 1400Z– 
2(c).’’. 
(c) REPORT TO CONGRESS.—The Secretary of the 
Treasury, or the Secretary’s delegate, shall submit a re-
port to Congress on the opportunity zone incentives en-
acted by this section beginning five years after the date 
of enactment of this Act and annually thereafter. The re-
port shall include an assessment of opportunity fund in-
vestments nationally and at the State level. To the extent 
such information is available, the report shall include the 
number of opportunity funds, the amount of assets held 
in opportunity funds, the composition of opportunity fund 
investments by asset class, the percentage of qualified op-
portunity zone census tracts designated under subchapter 
Z of the Internal Revenue Code of 1986 (as added by this 
section) that have received opportunity fund investments. 
The report shall also include an assessment of the impacts 
and outcomes of the investments in those areas on eco-
nomic indicators including job creation, poverty reduction, 
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and new business starts, other metrics as determined by 
the Secretary. 
(d) CLERICAL AMENDMENT.—The table of sub-
chapters for chapter 1 of such Code is amended by adding 
at the end the following new items: 
‘‘SUBCHAPTER Z. OPPORTUNITY ZONES’’. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall take effect on the date of the enactment 
of this Act. 
Æ 
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