Strategies / Opportunity Zones

Opportunity Zones

Defer recognized capital gains and pursue long-term, tax-advantaged real estate investment through Qualified Opportunity Funds investing in designated Opportunity Zones.

What are Opportunity Zones?

Opportunity Zones are designated census tracts in the United States that qualify for a federal tax-incentive program designed to encourage long-term investment in eligible communities.

The Opportunity Zones program was created by the Tax Cuts and Jobs Act of 2017 and directed billions of dollars of private capital into eligible communities. Congress made the program permanent under the One Big Beautiful Bill Act of 2025 (OBBBA), with renewed rules taking effect for investments made on or after January 1, 2027.

The renewed program preserves the core structure of the original: defer, reduce, then eliminate.

State governors designate eligible Opportunity Zones and the U.S. Department of the Treasury certifies them. The renewed program establishes a 10-year designation cycle, so the set of qualifying zones is updated every 10 years.

§ 1400Z-2

Internal Revenue Code

180days

to reinvest recognized capital gains into a QOF

10years

to fully eliminate capital gains tax on QOF appreciation

Reflects the OZ 2.0 framework under the One Big Beautiful Bill Act for investments made on or after January 1, 2027. Investments made under the original program follow prior rules.

Hover the timeline to explore each step

Day 0

Realize an eligible capital gain

A 180-day clock to reinvest the gain generally begins.

For educational purposes only. Not tax or legal advice. Summary of selected provisions; individual circumstances vary. Investors should consult their own tax advisors. No offer or solicitation.

Sources: One Big Beautiful Bill Act (OZ provisions); IRS Notice 2026-40 (transitional guidance); Economic Innovation Group; Novogradac / practitioner summaries.

Qualified Opportunity Funds

A Qualified Opportunity Fund (QOF) is the vehicle through which investors access the program. It is organized as a partnership or corporation and must hold at least 90% of its assets in eligible Opportunity Zone property.

QOFs can invest in a range of qualifying assets, including commercial real estate development, multifamily housing, infrastructure, and operating businesses located in Opportunity Zones.

The renewed program created a distinct Qualified Rural Opportunity Fund (QROF) category, which invests in designated Rural Opportunity Zones and offers an enhanced basis adjustment relative to standard QOFs.

How Opportunity Zones work

Defer

Capital gains deferral

Investors who reinvest recognized capital gains into a QOF within 180 days of recognizing the gain may defer the recognition of those gains. Gains passed through on a Schedule K-1 from a partnership or other pass-through entity follow modified timing rules that may extend the reinvestment window. Under the renewed program, each investor's deferred gain is recognized five years after the date of their QOF investment.

Reduce

Basis step-up at recognition

At the five-year recognition point, investors receive a 10% step-up in basis on the originally deferred gain, reducing the tax owed at recognition. Investors in a Qualified Rural Opportunity Fund (QROF) receive an enhanced 30% step-up.

Eliminate

Tax elimination after ten years

Investors who hold their QOF investment for at least 10 years from the same investment date receive a step-up in basis on the QOF investment, which may eliminate federal capital gains tax and depreciation recapture tax that would otherwise apply.

Section 1 of 3

Why investors consider Opportunity Zones

The Opportunity Zones program offers several potential benefits:

Tax deferral. On recognized capital gains reinvested through a QOF.

Step-up in basis. After defined holding periods, reducing or eliminating capital gains tax.

Broad eligibility. Any type of recognized capital gain qualifies, including short-term gains.

Enhanced basis adjustment. Available through the QROF category.

State tax benefits. Potential benefits in jurisdictions that conform with the federal Opportunity Zones program.

Investment access. Development-stage real estate and operating businesses in designated Opportunity Zones.

Estate planning fit. Long-duration holding profile that complements estate planning objectives.

Regulatory permanence. Under OBBBA, supporting long-duration investment planning.

Who Opportunity Zones are for

The Opportunity Zones program is most relevant to investors who:

Realized capital gain. Have recently realized or expect to realize an eligible capital gain.

Tax-advantaged exposure. Are seeking tax-advantaged exposure to qualifying real estate or business investment.

Long-term horizon. Have an investment horizon that supports the program's 5- and 10-year benefit periods.

Estate planning. Have estate planning objectives that benefit from long-duration ownership.

Community impact. Want investment exposure to communities targeted for long-term growth and development.

Key considerations

Before engaging in an Opportunity Zone investment, investors should evaluate:

Investment risk. Opportunity Zone investments involve real estate or business risk, including the potential loss of principal.

Speculative nature. QOF investments are speculative and often involve ground-up development, value-add real estate, or operating business risk. Suitable only for investors who can bear the loss of principal.

Sponsor execution. OZ outcomes depend heavily on the sponsor's track record, financial wherewithal, and direct experience executing within the Opportunity Zone framework.

Redesignation cycle. The eligibility status of specific census tracts may change at each 10-year redesignation, which can affect fund structure and long-duration planning.

180-day window. The reinvestment window for recognized gains is strict.

Compliance. Tax benefits depend on proper structuring and ongoing QOF qualification; failure to maintain compliance for the duration of the investment may reduce or eliminate the benefits.

Tax law risk. Tax laws and regulatory guidance may change; current Opportunity Zones treatment is not guaranteed indefinitely.

State conformity. State tax treatment of Opportunity Zone benefits varies; not all states conform to the federal program, and conformity under the renewed program continues to evolve.

Illiquidity. QOF investments are typically illiquid and structured for long-duration holding.

Advisor coordination. Opportunity Zone investments are complex and require coordination with qualified tax, legal, and financial advisors.

Sightbridge Approach

Opportunity Zones at Sightbridge

Sightbridge is evaluating QOF programs built with institutional real estate partners under the renewed Opportunity Zones program. Investors weighing an Opportunity Zone investment can review this material with their financial advisor. Advisors interested in the firm's perspective can contact the team directly.

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