Opportunity Zone Tax Deferral Calculator

Calculate the federal capital gains tax deferred, step-up basis benefits, and 10-year exclusion potential from investing capital gains in a Qualified Opportunity Zone Fund (QOF).

Realized gain you're rolling into QOF
20% federal + 3.8% NIIT typical for high earners
QOF gains tax-free if held 10+ years
Total Federal + State Tax Savings
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Deferred deferral + exclusion benefits over 10-year hold
Deferred Tax Until 2026
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Time Value of Deferral
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QOF Appreciation
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QOF Gain Tax Saved (10yr)
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Total Federal Tax Saved
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Total State Tax Saved
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How QOZ Tax Deferral Works

The Qualified Opportunity Zone (QOZ) program (IRS Section 1400Z-2, created by TCJA 2017, modified by OBBB 2025) provides federal capital gains tax deferral and potential exclusion for investments in designated low-income census tracts. Three key benefits stacked:

(1) Deferral: Defer recognition of the original capital gain until December 31, 2026 (or until you sell the QOF investment, whichever is sooner). (2) Step-up basis: Holding 5 years = 10% basis step-up. Holding 7 years = additional 5% step-up (15% total). Note: these step-ups expire after Dec 31, 2026, so the original capital gain still becomes due then. (3) Exclusion: If held 10+ years, ALL appreciation on the QOF investment itself is permanently tax-free at the federal level. This is the most valuable piece. Source: IRS Section 1400Z-2. Last updated: May 2026.

The December 31, 2026 Deadline

Critical caveat: the original capital gain you rolled into the QOF must be recognized by December 31, 2026 — regardless of whether you've sold the QOF or not. Plan to have cash on hand by tax filing in April 2027 to pay this. Most investors structure to take a distribution or refinance from the QOF in late 2026 to fund the tax bill.

What Qualifies as a QOF and a QOZ Investment

QOF (Qualified Opportunity Fund): A corporation or partnership organized for investing in QOZ property, self-certified via IRS Form 8996. QOZ Property: Tangible property in a designated zone — typically real estate, but can be operating businesses. There are about 8,700 designated zones across the US, mostly low-income census tracts. Substantial improvement test: If the QOF buys existing real estate, it must double the basis (excluding land) within 30 months via improvements. This is what unlocks the program for value-add real estate strategies.

OBBB 2025 Changes to QOZ

The One Big Beautiful Bill Act (P.L. 119-21, signed July 4, 2025) extended and modified the QOZ program. Key 2025-2026 changes: (1) New zone designations to be issued by mid-2026 covering some 2020 census tracts that weren't covered before. (2) Step-up basis benefits did NOT extend past Dec 31, 2026 for existing deferred gains. (3) New 2027+ contributions get a fresh 10-year clock with full step-up benefits available. Source: P.L. 119-21, IRS guidance Notice 2025-XX.