Opportunity Zones: Strategic Moves Before the 2026 Deadline

by | Jun 2, 2025 | Federal Tax, Tax News | 0 comments

Make use of strategic investment timing to get the most out of the golden window of tax relief in opportunity zone investments.

By Allen Gregory

The 2017 Tax Cuts and Jobs Act (Public Law No. 115-97) introduced the Opportunity Zone program, encouraging investment in nearly 9,000 underfunded rural and urban communities through tax incentives.    

Investors can reinvest any type of gain into a Qualified Opportunity Fund (QOF) and defer taxes they would have owed—such as from a 2018 gain—until 2026.

As we approach midyear 2025, it’s time to plan for any related tax payments coming due in 2026. If you deferred a gain and rolled it into a QOF, you may have taxes to recognize in 2026.

Investor Tax Incentives and Benefits

A QOF is any investment vehicle organized as a corporation or partnership with at least 90% of its assets in qualified Opportunity Zone property. Qualified investment projects must meet certain criteria based on the nature of the investment for their investors to qualify for tax relief. Investors who reinvest in a QOF within 180 days can defer tax on capital gains according to the following schedule.

The tax benefits of QOF investments are structured to encourage long-term investments in economically distressed areas. Holding the investment for longer durations can boost tax relief:

The tax benefits grow with the length of time the investment is held. Substantial tax advantages reward those who are patient.

  • Deferred capital gains are reduced by 10% after five years and an additional 5% after seven years, totaling a potential reduction of 15%.
  • Any appreciation on investments held for 10 years or longer is not taxed.
  • Deferred gains—minus any reductions from 5- to 7-year holding periods—must be recognized by 2026.

Preparing for 2026

Investors should prepare for the recognition of deferred gains in 2026 by reviewing QOF investments, confirming eligibility, and preparing for upcoming tax obligations. As you review these investments:

  • Identify the deferral period to make sure you reinvested eligible gains into a QOF within 180 days of realizing the gain.
  • Clarify the recognition period, which will be the earlier of these two dates: 1) the date the QOP investment is sold or exchanges, or 2) December 31, 2026.
  • Use this information to calculate your tax liability and plan accordingly.
  • Taxpayers who sold or exchanged a QOF investment during the tax year must be prepared to file Form 8949, Sales and Other Dispositions of Capital Assets.

Due Diligence Checklist Before 2026

Additional analysis can be done to value Opportunity Fund investments that take into account property appraisals, business valuations, market studies, and feasibility analyses, as well as the following.

  1. Assess funding structure and debt management load for impact on profits.
  2. Review transaction document compliance and timing requirements to establish a calendar of commitments.
  3. Analyze fund operations, method of accounting, state and local tax, and treatment of any tax credits with other incentives to determine feasibility of staying the course or unwinding the investment. Does the QOF meet the 70% business property requirement? Or the 50% gross income requirement?
  4. Perform due diligence on an exit strategy, including timing, a carried interest analysis, §163(j) interest expense limitation, §199A applicability, stress test assumptions, cost segregation, working capital and safe harbor matters, and related party issues.

With 2026 right around the corner, now is the time to work with your TaxOps Advisor  to make sure your Opportunity Zone investments are optimized and compliant—before the window closes.  

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Disclaimer: This content is for educational purposes only and is not intended, nor should it be relied upon, as legal, tax, accounting or investment advice. You should consult with a competent professional to discuss specifics of your situation and the applicability of the information presented. 

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