Benefits of Qualified Opportunity Funds Waning

Article Highlights:

  • Qualified Opportunity Fund

  • Qualified Opportunity Zones

  • Deferred Gains

  • 5- and 7-Year Holding Periods

  • 2026 End of Deferral

  • 10-Year Holding Period

A Qualified Opportunity Fund (QOF) is an investment vehicle which is organized as a corporation or a partnership for the purpose of investing in qualified opportunity zone property acquired after December 31, 2017. The QOF must hold at least 90% of its assets in qualified opportunity zone (QOZ) property but a taxpayer may not invest directly in QOZ property.

Qualified Opportunity Zones (QOZ) are population census tracts that are generally in low-income communities and that were specifically designated as QOZs after being nominated by the governor of the state or territory in which the community is located and approved by the Treasury Secretary, who then certified the community as a QOZ. The purpose of a QOZ is to spur economic growth and job creation in low-income communities while providing tax benefits to investors.

Starting back in 2018, a taxpayer who had a capital gain on the sale or exchange of any property to an unrelated party could elect to defer, and potentially partially exclude, the gain from gross income if the gain was reinvested in a Qualified Opportunity Fund (QOF) within 180 days of the sale or exchange. Unlike Sec 1031 deferrals (tax deferred exchanges), only the amount of the gain, not the amount of the proceeds of sale, needed to be reinvested to defer the gain.

As an incentive to invest in Qualified Opportunity Funds, the basis of the QOF investment was increased by 10% of the deferred gain if the taxpayer retained the QOF investment for 5 years. That was increased to 15% if the QOF was retained for 7 years. In other words, if the investment was held at least 5 years, 10% of the original gain is excluded, or if held 7 years, 15% of the original gain is excluded.

However, any gain deferred into a QOF becomes taxable the earlier of when the QOF investment is sold or December 31, 2026. Thus, if an individual invests in a QOF in 2023, that only leaves 4 years before the deferred gain becomes taxable at the end 2026. This means an investor just now investing in a QOF doesn’t have enough time to hold the investment the required 5 or 7 years to benefit from the 10% or 15% step up in basis when the deferral has to be reported on the 2026 return. However, the gain deferral is still available and is not taxable until the 2026 return is filed.

As illustrated nearby, to meet the meet the 7-year holding requirement the QOF must have been purchased before 1/1/2020 and prior to 1/1/2022 to meet the 5-year holding period.

One benefit remains. If the QOF is held for 10 years or longer before it is sold, the taxpayer can elect to increase the basis to the fair market value amount. The effect of this adjustment is that none of the appreciation since the QOF was purchased is taxable when it is sold. This provision applies only to the investment in the QOF that was made with deferred capital gains.

Please give this office a call if you have questions.

Share this article...

Sign up for our newsletter.

Each month, we will send you a roundup of our latest blog content covering the tax and bookkeeping tips & insights you need to know.

I confirm this is a service inquiry and not an advertising message or solicitation. By clicking “Submit”, I acknowledge and agree to the creation of an account and to the and .

We care about the protection of your data.

Junglebooks Affiliate Program

Why Partner with Us?

With years of experience and a team of certified professionals, we deliver exceptional results to our clients.

Industry-Leading Expertise

Our firm is a leader in the accounting industry, providing comprehensive services that include tax preparation, bookkeeping, financial planning, and business consulting. With years of experience and a team of certified professionals, we deliver exceptional results to our clients.

Attractive Commissions

We value our affiliates and offer competitive commission rates for every client you refer who signs up for our services. The more clients you refer, the more you earn.

Comprehensive Support

We provide our affiliates with all the resources needed to succeed, including marketing materials, dedicated support, and regular updates on our services. You’ll have everything you need to effectively promote our firm and earn commissions.

Trusted Reputation

Our firm has built a solid reputation for excellence and trustworthiness. When you refer clients to us, you can be confident that they will receive the highest level of service and satisfaction.

Frequently Asked Questions

This firm prepares tax returns for individuals, partnerships, corporations, estates, trusts, and any entities with tax-reporting requirements. Our firm’s seasoned professionals are experts in all areas of taxation including:


  • Individual Returns
  • Payroll Tax Issues
  • Business Returns
  • Sales Tax Returns
  • Rental Income Returns
  • Business Consultation
  • Expatriate Returns
  • Fiduciary & Estate Returns
  • Corporation Returns
  • Bookkeeping
  • Partnership Returns
  • LLC Returns

Our firm offers a full range of planning services including, but not limited to:


  • Individual Tax Planning
  • Business Tax Planning
  • Business Organization
  • Rental Properties
  • Foreclosures and Repossessions
  • Retirement
  • Investments
  • Sales and Exchanges
  • Pension Plans
  • Education Planning
  • Finance & Refinance Planning
  • Home Purchase and Sale Planning
We are here for you twelve months a year, not just during tax season. Whether you have a simple tax question, need advice on the tax implications of a business decision, or want clarification on a government notice, feel free to give us a call.
We maintain a policy of the strictest confidence concerning our clients’ affairs. You can rest assured that no one will learn about your business or tax status – even relatives, associates or friends who might have referred you to us.