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Investing in Opportunity Zones
Opportunity Zones offer one of the most powerful tax incentives available to investors today — and they also drive real economic impact. By reinvesting capital gains into qualified OZ projects, investors can defer taxes, potentially eliminate gains on new investments, and participate in institutional-quality deals in growing but overlooked markets. It's a rare chance to align tax efficiency, attractive returns, and meaningful impact — all in one strategy.
Investing in Opportunity Zones
Opportunity Zones offer one of the most powerful tax incentives available to investors today — and they also drive real economic impact. By reinvesting capital gains into qualified OZ projects, investors can defer taxes, potentially eliminate gains on new investments, and participate in institutional-quality deals in growing but overlooked markets. It's a rare chance to align tax efficiency, attractive returns, and meaningful impact — all in one strategy.
"Opportunity Zones" vs. "Opportunity Funds"?
What is a Qualified Opportunity Zone (QOZ)?
A geographic location deemed to be economically distressed as nominated by the state and certified by the Treasury Department.
Qualified Opportunity Zones must:
- have an individual poverty rate of at least 20%
- have a median family income no greater than 80%
Purpose:
Opportunity Zones offer a program to stimulate investment in economically disadvantaged communities by offering incentives for investors.
What is a Qualified Opportunity Fund (QOF)?
A fund created for the purpose of investing in real estate or business development within a Qualified Opportunity Zone.
Qualified Opportunity Funds must:
- be certified by U.S. Department of the Treasury
- hold a minimum 90% of their assets in OZ property
Purpose:
Opportunity funds allow for investors to participate in the Opportunity Zone program and access the associated tax incentives.
How to Invest in Opportunity Zones
ELIGIBLE GAINS
Eligible gains for opportunity zone investment include both capital gains and qualified 1231 gains:
- Capital Gains from the sale or exchange of any appreciated asset, including stocks, real estate (primary or investment property), business shares, art, bonds, and even cryptocurrencies, are eligible for reinvestment.
- Qualified Section 1231 Gains: Certain types of business properties held for over one-year can also qualify for deferral.
How Opportunity Zones Differ from 1031 Exchanges
Both Opportunity Zones (OZ) and 1031 Exchanges offer investors ways to defer or reduce capital gains taxes. The best option for an investor depends on the individual investor's financial goals, desired time commitment, and source(s) of their eligible assets.
1031 Exchanges may appeal to current real estate investors focused on temporary or indefinite tax deferral. Opportunity Zones may appeal to investors willing to commit to long-term investments (10+ years) with a variety of investment types available for investment.
The image above is the property featured in the BV Ernest Health Neuro Rehab DST, a 1031 exchange eligible investment.
Below is a comparison of these tax-advantaged real estate investment strategies:
1031 Exchange
- Long Term tax deferral until the replacement property is sold. The deferred capital gains tax can be avoided entirely if the investment is passed onto heirs at a stepped up cost basis.
- Ability to exchange into properties located anywhere in the U.S
- Limited to Real Estate, like-kind property gains only
- No appreciation benefits
Qualified Opportunity zone
- Temporary tax deferral on invested capital gains until December 31, 2026, or when the such opportunity fund investment is sold/exchanged. After 5 years, investors receive a 10% step-us basis on original gains.
- Limited geographically, funds exist only in designated Opportunity Zones
- Multiple sources of gains are eligible to invest in Qualified Opportunity Funds.
- Elimination of tax on QOF capital gains when held for 10+ years.
process of tax deferral programs - Opportunity funds vs. 1031 exchanges
Qualified Opportunity Funds (QOF) timeline
In the QOZ program, in order for investors to defer tax payments on capital gains those gains must be invested in a Qualified Opportunity Fund within 180 days after the sale.
DAY 1
Sell Asset(s)
Obtain Capital Gains through the sale of any type of asset (real estate, stocks, bonds, etc.)
by DAY 180
Invest into a Qualified Opportunity Fund (QOF)
Reinvest those capital gains into an opportunity fund within 180 days.
5 years
10% Step-Up on Existing Deferred Gains
If the fund is held for 5 years, investors receive a 10% exclusion of the deferred gain on their investment.
7 years*
15% Step-Up on Existing Deferred Gains*
If the fund is held for 7 years, investors now "step-up" to receive a 15% exclusion of the deferred gains
+10 years
Elimination of the Fund's Capital Gains
After 10 years, the investor does not owe income taxes on the fund’s appreciation by the date of sale.
*As of January 1, 2027 there will no longer be a 7-year basis step-up, rather a rolling deferral beginning at the 5-year date of investment.
1031 eXCHANGE TIMeLINE
1031 Exchanges allow investors to postpone paying tax once an investment property is sold if they reinvest the proceeds in a like-kind property as part of a qualifying exchange within 180 days.
DAY 1
Sell Relinquished Property
Investor sells property and proceeds are escrowed with a Qualified Intermediary (QI)
by DAY 45
Identify Replacement Property
Qualified Intermediary transfers funds for purchase of replacement property
by DAY 180
Acquire Replacement Property
Investor receives new property or DST interest.
date of sale/exit
Sell Relinquished Property
Investors can continue deferring capital gains by reinvesting the proceeds into another like-kind property, potentially repeating this process multiple times.
ongoing
Indefinite Tax Deferral
Capital gains taxes can be eliminated with a step-up in basis to fair market value for the property’s heirs when the investment owner dies.
The image above is the property featured in the BV Ernest Health Neuro Rehab DST, a 1031 exchange eligible investment.
How Opportunity Zones Differ from 1031 Exchanges
Both Opportunity Zones (OZ) and 1031 Exchanges offer investors ways to defer or reduce capital gains taxes. The best option for an investor depends on the individual investor's financial goals, desired time commitment, and source(s) of their eligible assets.
1031 Exchanges may appeal to current real estate investors focused on temporary or indefinite tax deferral. Opportunity Zones may appeal to investors willing to commit to long-term investments (10+ years) with a variety of investment types available for investment.
Below is a comparison of these tax-advantaged real estate investment strategies:
1031 Exchange
- Long Term tax deferral until the replacement property is sold. The deferred capital gains tax can be avoided entirely if the investment is passed onto heirs at a stepped up cost basis.
- Ability to exchange into properties located anywhere in the U.S
- Limited to Real Estate, like-kind property gains only
- No appreciation benefits
Qualified Opportunity zone
- Temporary tax deferral on invested capital gains until December 31, 2026, or when the such opportunity fund investment is sold/exchanged. After 5 years, investors receive a 10% step-us basis on original gains.
- Limited geographically, funds exist only in designated Opportunity Zones
- Multiple sources of gains are eligible to invest in Qualified Opportunity Funds.
- Elimination of tax on QOF capital gains when held for 10+ years.
process of tax deferral programs - Opportunity funds vs. 1031 exchanges
Qualified Opportunity Funds (QOF) timeline
In the QOZ program, in order for investors to defer tax payments on capital gains those gains must be invested in a Qualified Opportunity Fund within 180 days after the sale.
DAY 1
Sell Asset(s)
Obtain Capital Gains through the sale of any type of asset (real estate, stocks, bonds, etc.)
by DAY 180
Invest into a Qualified Opportunity Fund (QOF)
Reinvest those capital gains into an opportunity fund within 180 days.
5 years
10% Step-Up on Existing Deferred Gains
If the fund is held for 5 years, investors receive a 10% exclusion of the deferred gain on their investment.
7 years*
15% Step-Up on Existing Deferred Gains*
If the fund is held for 7 years, investors now "step-up" to receive a 15% exclusion of the deferred gains
+10 years
Elimination of the Fund's Capital Gains
After 10 years, the investor does not owe income taxes on the fund’s appreciation by the date of sale.
*As of January 1, 2027 there will no longer be a 7-year basis step-up, rather a rolling deferral beginning at the 5-year date of investment.
1031 eXCHANGE TIMeLINE
1031 Exchanges allow investors to postpone paying tax once an investment property is sold if they reinvest the proceeds in a like-kind property as part of a qualifying exchange within 180 days.
DAY 1
Sell Relinquished Property
Investor sells property and proceeds are escrowed with a Qualified Intermediary (QI)
by DAY 45
Identify Replacement Property
Qualified Intermediary transfers funds for purchase of replacement property
by DAY 180
Acquire Replacement Property
Investor receives new property or DST interest.
date of sale/exit
Sell Relinquished Property
Investors can continue deferring capital gains by reinvesting the proceeds into another like-kind property, potentially repeating this process multiple times.
ongoing
Indefinite Tax Deferral
Capital gains taxes can be eliminated with a step-up in basis to fair market value for the property’s heirs when the investment owner dies.
What can commercial real estate investors expect with the new Opportunity Zone program in 2027?
Investors with capital gains in Qualified Opportunity Funds after December 31, 2026, will still benefit from the elimination of capital gains taxes on their opportunity zone investments held for at least 10 years (including gain that otherwise would be recognized as depreciation recapture).
The new program does however, bring with it some important changes for real estate investors.
whats changed with the obbba bill?
Under the OBBBA bill, original investments made prior to December 31, 2026 will not be extended and will become inclusion events as of January 1, 2027.
The treatment of deferral of the original capital gains is one of the most significant changes. Starting January 1, 2027, the program will offer a 10% step-up in tax basis via a rolling five-year deferral period for the initial capital gains invested, eliminating the basis step-ups at five and seven years in the current act.
Qualified Rural Opportunity Funds (QROF): Beginning on January 2027, there will be the addition of QROF which will benefit from a 30% step-up after being held for 5 years. There will also be a reduction of the "substantial improvement" requirement for rural properties from 100% to 50% of the adjusted basis to be invested in improvements. The goal is to encourage investment in rural areas by making it easier to rehabilitate or repurpose existing properties.
New Opportunity Zones: Starting July 1, 2026, governors will be required to select new Census tracts every decade, with stricter requirements needed for OZ designation. Zones created under the original OZ Act will continue to remain but the ability to defer capital gains taxes on investments made in these existing zones will end on December 31, 2026.
MILESTONES TO WATCH
Should you invest in Qualified Opportunity Funds (QOFs) in 2025/2026?
The transition period between the current program and Opportunity Zones 2027 creates a complex strategic landscape for investors.
The new rules taking effect in 2027 offer permanence and updated incentives, especially for rural investments, but come with a new set of zone designations and potentially stricter eligibility requirements.
Despite the tax deferral period nearing its end, investing in a QOF now allows investors to benefit from the existing rules and zone designations.
WHAT TO CONSIDER:
LARGER QUANTITY OF QUALIFIED OPPORTUNITY ZONES TO INVEST IN
Those who can deploy capital gains before the December 31, 2026, deadline will enjoy the current program's more generous opportunity zone options via the current maps.
Starting July 1, 2026, governors will will operate under a tighter criterion than the original program, selecting new Census tracts every decade, with the first new designations taking effect January 1, 2027. The new "low-income community" threshold will eliminate around 22% of current opportunity zones.
Investing now allows for the opportunity to invest in more established areas that may not qualify come 2027.
2026 K-1 GAINS
Investors receiving capital gains late in 2026 might consider themselves better served by waiting until 2027 to make their opportunity zone investments, when they can take advantage of the new five-year rolling deferral rather than being locked into the abbreviated timeline of the current program's final year.
However, there are QOZ funds available now that still allow for a cash out refinance in time for an investor to pay their 2027 tax bill.
SHORTER TAX DEFERRAL PERIOD
For investors entering the program in 2025-2026, the deferral benefit still provides meaningful value through the present value of 1-2 years of tax deferral and the investment return potential on the deferred tax amount. Plus, the benefit of the 10 year elimination of capital gains tax provides for protection against the risk of higher future tax rates.
The 5 year basis step up will not apply to QOF investments made before December 31. 2026. As of January 1, 2027 the program will be reinvented.
For investors looking a capital gain solution today it’s important to invest in an opportunity zone fund that can still provide a cash out refinance option to offset their 2027 taxes.
Disclaimer:
This communication is not intended as tax advice.
It is crucial for investors to consult with a financial advisor or tax professional to determine the most suitable strategy for their individual circumstances and ensure compliance with all IRS regulations.Learn More
Read our extended article on Opportunity Zones.
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*The information contained herein does not constitute an offer to sell nor is it a solicitation of an offer to purchase any security. Offers will only be made through a private placement memorandum to accredited investors and where permitted by law. Investments in the firm’s limited partnerships involve a high degree of risk, including the possible loss of your investment, and they are potentially illiquid with an uncertain liquidity date. Prospective investors should carefully review the “Risk Factors” section of any private placement memorandum. Past performance is not indicative of future results.
**BV Capital is a member of the Bridgeview family of companies based in Dallas, TX. BV Capital offers investments to existing private clients, broker dealers, registered investment advisors and family offices. BV Securities (FINRA / BROKERCHECK / Reg BI) is Bridgeview’s managing broker dealer. BV Capital manages the financial and administrative operations for Bridgeview and BV Securities offerings.**
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