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. Over the years that followed, the program directed billions of dollars of private capital into eligible communities and demonstrated meaningful economic and community impact. Recognizing the program's success, Congress made the Opportunity Zones program permanent under the One Big Beautiful Bill Act of 2025 (OBBBA), with renewed program rules taking effect for investments made on or after January 1, 2027.
The renewed program preserves the core structure of the original. Investors who reinvest recognized capital gains into a Qualified Opportunity Fund (QOF) within a defined window may defer the recognition of those gains, receive a basis adjustment after a defined holding period, and eliminate capital gains and depreciation recapture tax on the appreciation of the QOF investment if the investment is held for the full required period.
Qualified Opportunity Funds
A Qualified Opportunity Fund (QOF) is the investment vehicle through which investors access the Opportunity Zones program. A QOF is organized as a partnership or corporation and is required to 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 structure provides a regulated framework for capital deployment while preserving the program's tax benefits for qualifying investors.
The renewed program created a distinct Rural Qualified Opportunity Fund (RQOF) category. RQOFs invest in designated Rural Opportunity Zones and offer enhanced basis adjustment relative to standard QOFs, intended to direct private capital toward eligible rural communities.
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 Rural QOF (RQOF) 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, eliminating federal capital gains tax and depreciation recapture tax that would otherwise apply. State tax benefits may also apply in states that conform with the federal Opportunity Zones program.
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