The Qualified Opportunity Zone (QOZ) program was created as part of the Tax Cuts and Jobs Act of 2017 to encourage long-term investment in designated communities throughout the United States. Investors who reinvested eligible capital gains into a Qualified Opportunity Fund (QOF) received several tax incentives, including the deferral of the original gain and, for many early investors, a partial basis step-up.
While the gain deferral received much of the initial attention, the most valuable benefit of the program remains the potential exclusion of federal capital gains tax on future appreciation if the investment is held for at least 10 years and all applicable requirements are met.
As investors look toward the future, however, another important milestone is approaching. Under current law, deferred gains invested in Qualified Opportunity Funds generally become taxable on December 31, 2026, regardless of whether the underlying investment has been sold.
Qualified Opportunity Funds are also subject to ongoing compliance requirements, including a requirement that at least 90% of fund assets be invested in qualified Opportunity Zone property. Investors should continue to monitor both the tax implications and the ongoing health and compliance of their investments.
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