Sure, it's CIP still until it is completed. The more important questions are whether or not it would be qualifying property. As long as the property was never depreciated or could be, this would be considered original use property.
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If a QOF buys a building that is 95% completed by the seller, is that still considered to be construction in progress?
What is the benefit of buying a complete structure or a construction in progress?
Answers
Construction in progress probably avoids the substantial improvement and related party rules.
Yes, you still can meet original use if no depreciation has been taken on the building since not yet completed. A complete structure for which depreciation should be taken would not qualify as an Opportunity Zone investment qualifying asset. You can't just go buy a new building that's been in use. Also, buying near complete de-risks significantly. I would think many funds are looking for near-completed buildings for that reason, particularly if there are strong pre-lease commitments.
Purchasing a new structure versus one still in construction would be indifferent. Original use would begin with you rather than the builder/developer as they did not place the building into service. To them, it would be a good treated like inventory.
If this is a new building (vs. a rehab), then the QOF should be treated as the original user and no "substantial improvements" will be necessary. In your fact pattern it should not matter whether the building has been issued a certificate of occupancy or not at the time of purchase as long the fund is the first user.
Original use is determined when the property is put into service for the first-time for depreciation or amortization purposes within a zone. Therefore, you will need to verify that the current owner has not placed the building in service for depreciation purposes. As long as the original use of the building starts with the QOF, there is no advantage on acquiring a completed building vs a CIP.
The benefit is that this is arguably a "loophole" in the original use requirement, whereby if the seller has never placed the property into service for federal income tax purposes, a QOF can buy "turnkey" property without having to develop or substantially improve it. Under the statute and regulations as written, this appears to work, but future IRS guidance may zap out the technique.
The proposed regulations indicate that original use simply means that it has not yet been placed in service (i.e., depreciated). So your example appears to qualify.
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