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Opportunity Zones (§1400Z-2 Capital Gains Deferral)
IRS / U.S. Treasury (CDFI Fund census tract designation)See programDeadline: Capital gains must be invested in a Qualified Opportunity Fund within 180 days of realization. Program is now PERMANENT under OBBBA (P.L. 119-21, signed 7/4/2025). New OZ tract designations made within 90-day window beginning 7/1/2026 ("OZ 2.0" map).
Federal capital gains deferral program under IRC §1400Z-2, established by Tax Cuts and Jobs Act of 2017. Defers federal tax on realized capital gains reinvested in Qualified Opportunity Funds, and excludes 100% of post-investment appreciation from federal taxation if QOF interest held 10+ years. MADE PERMANENT by the One Big Beautiful Bill Act (P.L. 119-21, July 4, 2025) — original sunset removed; program continues indefinitely with modified post-2026 rules ("OZ 2.0"). Major incentive for real estate development, business expansion, and commercial redevelopment in distressed communities. Particularly relevant when stacked with §179D + MACRS for energy-efficient commercial buildings in OZ tracts.
Program details
- Agency
- IRS / U.S. Treasury (CDFI Fund census tract designation)
- Level
- Federal
- Category
- Real Estate Tax Incentive
- Eligibility
- Any taxpayer (individual, corporation, partnership, trust) with realized capital gains (short or long term). Gains must be reinvested into a Qualified Opportunity Fund (QOF) — a corporation or partnership organized for the purpose of investing in Qualified Opportunity Zone Property. QOFs invest in property/businesses located in designated low-income census tracts (~8,700 currently; new "OZ 2.0" map effective starting 7/1/2026 designations). Stackable with most other federal credits including §179D, §48E, §30C, NMTC, HTC, LIHTC. Does NOT stack with §1031 like-kind exchanges (must choose).
- Funding Amount
- PRE-2027 INVESTMENTS (IRA-era rules): capital gains deferral until 12/31/2026 (or sale of QOF interest, if earlier); 10% basis step-up if QOF held ≥5 years (must invest by 12/31/2021 to capture — window closed); 100% exclusion of post-investment QOF appreciation if held ≥10 years. POST-2026 INVESTMENTS ("OZ 2.0", per OBBBA): rolling 5-year deferral period from each investment date; 10% basis step-up at 5-year hold; 100% post-investment appreciation exclusion at 10-year hold (7-year additional step-up ELIMINATED for all investors).
- Deadline
- Capital gains must be invested in a Qualified Opportunity Fund within 180 days of realization. Program is now PERMANENT under OBBBA (P.L. 119-21, signed 7/4/2025). New OZ tract designations made within 90-day window beginning 7/1/2026 ("OZ 2.0" map).
- Status
- open
- Project Types
- real_estate, commercial, multifamily, industrial, community
- Client Types
- commercial
- Notes
- PERMANENT PROGRAM (no cliff). 12/31/2026 is the deferral-recognition date for IRA-era investments (gains recognized then unless QOF sold sooner). Post-12/31/2026 investments use "OZ 2.0" rules: rolling 5-year deferral, no 7-year step-up. New tract designations Q3 2026. For evlv.energy clients: most relevant for commercial real estate developers and investors with concentrated capital gains positions. Check IL OZ map (opportunityzones.hud.gov) for current tract eligibility — significant coverage in Chicago, East St Louis, Rockford, Peoria, and Aurora; OZ 2.0 map will reset designations.
Source: Grantya research. Confirm current terms with the administering agency before applying.