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Substantially-All Test

The Substantially-All Test is a requirement within the framework of the Qualified Opportunity Fund (QOF) industry, particularly in reference to investments in Opportunity Zones in the United States. Established by the Tax Cuts and Jobs Act of 2017, Opportunity Zones aims to encourage long-term investments in economically distressed communities by offering tax incentives.

In this context, the Substantially-All Test is a criterion used to determine whether a business or property qualifies for these tax benefits. Specifically, this test requires that a significant portion, often defined by a certain percentage, of a property or business’s assets or conduct be within an Opportunity Zone to be eligible for QOF benefits.

Here are some specifics related to the Substantially-All Test:

  • For Tangible Property: A substantial portion of the tangible property owned or leased by a business must be used in an Opportunity Zone. The regulation typically specifies that during at least 90% of the QOF’s holding period for such property, the property must be used inside an Opportunity Zone.
  • For Business Conduct: At least 70% of the property, owned or leased, should be located within an Opportunity Zone, and a substantial part of the business’s operations should also be conducted within the Opportunity Zone to satisfy the Substantially-All Test.