Qualified Opportunity Zones
Defer capital gains through Qualified Opportunity Zone investments.
Overview
Qualified Opportunity Fund (QOF) investments allow taxpayers to defer capital gains by investing proceeds into designated Qualified Opportunity Zones within 180 days of realization.
Deferred gain is recognized on December 31, 2026. QOF appreciation is excluded from taxation if held for 10+ years. Original deferred gain remains taxable in 2026 regardless of hold period.
Requirements
Recent Capital Gain
Realized capital gain from sale of property or securities. Gain must be invested in QOF within 180 days of recognition.
Qualified Opportunity Fund
Investment must be made into qualified QOF investing in designated Opportunity Zone property. Direct investment in Opportunity Zone property does not qualify.
10-Year Hold Period
QOF investment must be held for minimum 10 years to qualify for permanent exclusion of QOF appreciation.
Tax Benefits
Example: $2M capital gain invested in QOF in 2023. Original $2M gain deferred until December 31, 2026 (taxable on 2026 return). If QOF appreciates to $4M and held for 10+ years, $2M appreciation is permanently excluded from taxation.
Deferral period ends December 31, 2026 regardless of when QOF investment was made. No additional basis step-up available for investments made after 2019.
10-year hold requirement measured from initial QOF investment date. Taxpayer may elect to exclude QOF appreciation from gross income after meeting hold period.
Implementation
QOF Selection
Identify qualified QOF with investment strategy, risk profile, and geographic focus aligned with investor objectives. Review fund documentation and compliance history.
180-Day Investment
Invest capital gain proceeds into QOF within 180-day window. Clock starts from date of gain recognition (typically sale date, but varies for partnerships and S-Corporations).
Tax Reporting
File Form 8949 and Form 8997 with tax return reporting QOF investment and gain deferral election. Coordinate with CPA for proper reporting and annual compliance.
Important Considerations
Original deferred gain becomes taxable December 31, 2026 regardless of QOF hold period. Tax payment due April 2027. Plan liquidity accordingly.
QOF investment carries real economic risk. Opportunity Zone designation does not guarantee investment returns. Evaluate underlying investment merit independent of tax benefits.
10-year illiquidity required to maximize tax benefits. Early disposition triggers gain recognition and forfeits permanent exclusion benefit.
180-day investment window strictly enforced. Late investments ineligible for deferral benefits. Coordinate with CPA to determine precise deadline for your situation.
Discuss Implementation
Contact us to evaluate Qualified Opportunity Zone strategy for recent capital gains.