Opportunity Zone answers
Basecamp is our free Opportunity Zone library. These are short, direct answers to the questions investors, CPAs, and advisors ask us most. Each one is reviewed by Ashley Tison, attorney, cites the rule it comes from, and is updated when the rules change.
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What is an Opportunity Zone?An Opportunity Zone is a census tract that a state nominated and the U.S. Treasury certified for special tax treatment. Invest a capital gain into a Qualified Opportunity Fund that puts money into one of these areas, and you can defer the tax, reduce it, and keep the growth free of federal capital gains tax after ten years.Read the answer →What is a Qualified Opportunity Fund?A Qualified Opportunity Fund, or QOF, is a partnership or corporation set up to invest in Opportunity Zones, and it must hold at least 90% of its assets in qualified Opportunity Zone property, tested twice a year. The fund certifies itself with the IRS on Form 8996. Your capital gain goes into the QOF to earn the tax benefits.Read the answer →What are the tax benefits of investing in an Opportunity Zone?There are three. You defer the tax on the capital gain you reinvest. Under OZ 2.0, holding five years cuts the taxable part of that gain by 10%, or 30% for qualified rural funds. And after ten years, the growth on your Opportunity Zone investment is free of federal capital gains tax.Read the answer →How long do I have to invest a gain in an Opportunity Zone?You generally have 180 days from the date you realize the gain to invest it in a Qualified Opportunity Fund. For most sales, the clock starts on the sale date. Gains from a partnership or S corporation, Section 1231 property, and installment sales have their own start dates, which can give you more time.Read the answer →What capital gains qualify for an Opportunity Zone?Most capital gains qualify, short term or long term, as long as the sale was to an unrelated party. That includes gains from stock, a business, real estate, crypto, and collectibles, plus Section 1231 gains from business property. Ordinary income does not qualify. Only the gain portion gets the tax benefits, not your original basis.Read the answer →Can you 1031 exchange into an Opportunity Zone?Not as one transaction. A 1031 exchange swaps one investment property for another and reinvests all the proceeds, and an Opportunity Zone investment only needs the gain, from almost any asset. If a 1031 falls through or you take cash out, that taxable gain can often go into a Qualified Opportunity Fund within 180 days.Read the answer →What happens to my deferred Opportunity Zone gain on December 31, 2026?If you invested in a Qualified Opportunity Fund under the original program, your deferred gain counts as income on December 31, 2026, and goes on your 2026 return, due April 2027. The taxable amount is the lesser of the deferred gain or the investment's fair market value, minus your basis. Keep holding, because tax-free growth after ten years is still on the table.Read the answer →What should I do before December 31, 2026?On December 31, 2026, gains deferred under the original program become taxable, and projects in zones that are not on the new map need a written working capital plan in place. A gain from a sale on or after July 9, 2026 can still wait and invest under OZ 2.0 in January. Here is the checklist.Read the answer →Can a gain from 2026 use the OZ 2.0 rules?Yes, if your 180-day window reaches into 2027. IRS Notice 2026-40 says a 2026 gain invested on or after January 1, 2027 gets the OZ 2.0 rules: five years of deferral and a 10% step-up at year five, or 30% in a qualified rural fund. For a regular sale, a sale date of July 9, 2026 or later clearly gets there, and K-1 gains often have more room.Read the answer →How can I lower the tax on my deferred Opportunity Zone gain coming due in 2026?You cannot roll the gain that comes due on December 31, 2026 into a new Opportunity Zone fund, but you can lower the tax on it. The common tools are capital losses, depreciation from cost segregation and bonus depreciation, energy credits, and a few business and charitable strategies. Each has limits, and most have to be in place by December 31, so start now.Read the answer →Can a valuation discount lower my December 31, 2026 Opportunity Zone tax?Sometimes, but less often than people hope. The amount you report for December 31, 2026 starts from the lesser of your deferred gain or the fair market value of your fund interest. For funds taxed as partnerships or S corporations, the regulations measure value as a fully taxable sale, which brings your share of debt and past losses back into the number, and on leveraged deals that often erases the discount.Read the answer →How do I keep a project going in an Opportunity Zone that isn't on the new map?If your project sits in an original zone that is not on the new map, new property bought after 2026 generally will not qualify under the rules the IRS has announced it will propose. Notice 2026-40 says those rules will have one main exception: a written working capital plan adopted by December 31, 2026, with at least 10% of the planned capital received by the business and at least 5% spent or under binding contract by that date.Read the answer →What is a shelf fund, and when would I need one?A shelf fund is an entity formed ahead of time, with its EIN and bank account already in place, but with no investors or assets. When a 180-day window is about to close, it can be set up for you so you can sign and wire your gain in days. It still has to self-certify on Form 8996 and follow every Qualified Opportunity Fund rule from its first month as a fund.Read the answer →What is OZ 2.0?OZ 2.0 is the permanent version of the Opportunity Zone program, passed in July 2025. Starting January 1, 2027, new investments get a five-year rolling deferral, a 10% reduction of the deferred gain after five years, or 30% in qualified rural funds, and tax-free growth after ten years. A new map of zones takes effect the same day.Read the answer →What is the difference between OZ 1.0 and OZ 2.0?The rules depend on when your money goes into a fund. Money invested through December 31, 2026 follows OZ 1.0: the deferral ends December 31, 2026 and the step-ups are out of reach. Money invested from January 1, 2027 follows OZ 2.0: a five-year rolling deferral, a 10% reduction (30% in a rural fund), a new map, and a tighter income test. Both keep tax-free growth after ten years.Read the answer →What is a rural Opportunity Zone, and why does the 30% step-up matter?Under OZ 2.0, a qualified rural opportunity fund holds at least 90% of its assets in Opportunity Zone property in rural areas. Hold five years and the taxable part of your deferred gain drops by 30%, three times the standard 10%. Rural property also has an easier improvement test: more than 50% of the building's basis, instead of more than 100%. That test has applied since July 4, 2025.Read the answer →What is a Qualified Opportunity Zone Business (QOZB)?A Qualified Opportunity Zone Business, or QOZB, is the company that owns the property or runs the business under most Opportunity Zone funds. Your fund buys new equity in it for cash. To qualify, it has to pass a set of tests every year, starting with at least 70% of its tangible property being Opportunity Zone property.Read the answer →How do I set up my own Opportunity Zone fund?You can form your own Qualified Opportunity Fund, often called a captive fund. There is no IRS application. You form a partnership or corporation organized to invest in Opportunity Zone property, get an EIN and a bank account, invest your gain within 180 days, and self-certify on Form 8996 with the fund's first return. Most people add a QOZB under the fund to own the project.Read the answer →How big a gain makes an Opportunity Zone investment worth it?There is no legal minimum. A fund can take any amount of eligible gain. The real question is whether the tax you save outruns the cost and work of staying compliant for ten years or more. That depends less on the size of the gain than on how much the investment grows, how long you hold it, and who runs the fund: you or a sponsor.Read the answer →Can non-capital gains go into an Opportunity Zone fund?Yes, but that money gets none of the tax benefits. A fund can accept any cash. Only the part that comes from an eligible gain, with a deferral election, is a qualifying investment. Everything else is a separate non-qualifying investment inside the same fund interest, with no deferral, no step-up, and no tax-free exit. The two parts are tracked separately for the life of the investment.Read the answer →Can I sell an Opportunity Zone business tax-free?Yes, if the structure and the hold are right. Hold a qualifying fund investment at least ten years and you can elect to step its basis up to fair market value when you sell, so the growth is free of federal capital gains tax. If the fund is a partnership or S corporation, you can also elect to exclude the gain when the fund sells its stake in the business. The business has to keep passing the QOZB tests the whole time.Read the answer →What are Form 8996 and Form 8997?Form 8996 is the Qualified Opportunity Fund's own form, filed every year with its tax return to certify itself and report its 90% asset test. Form 8997 is the investor's form. You file it every year you hold a fund investment to report what you put in, what you still hold, and any deferred gain.Read the answer →How do I fill out Form 8996?Form 8996 is the fund's own form. A Qualified Opportunity Fund attaches it to its federal return every year to certify itself and report its 90% asset test. Part I certifies the fund. Parts II and III run the test. Part IV figures any penalty month by month. Parts V through VII list every census tract and QOZB behind the numbers. It is due with the fund's return, including extensions.Read the answer →What happens if a Qualified Opportunity Fund missed its first Form 8996?A fund certifies itself by filing Form 8996 with a timely first-year return, including extensions, so a missed filing puts the fund's status and its investors' deferrals at risk. The usual fix is to ask the IRS for more time to make the election under Treas. Reg. 301.9100-3, through a private letter ruling. The IRS has granted that relief in published rulings.Read the answer →How do the June 30 and December 31 Opportunity Zone asset tests work?A Qualified Opportunity Fund must hold at least 90% of its assets in Opportunity Zone property, measured on the last day of the first six months of its tax year and on the last day of the year. For a calendar-year fund after its first year, that means June 30 and December 31. The two results are averaged. If the average falls short, the penalty is figured month by month.Read the answer →What are the most common Opportunity Zone audit traps?Most Opportunity Zone audit problems start with paperwork, not the deal. The costly traps are a late first Form 8996, a missed Form 8997, cash left in the fund on a test date, property bought from a related party or in the wrong entity, a working capital plan the spending does not match, a missed improvement deadline, and distributions above basis. Each ties to a specific rule, and each is avoidable.Read the answer →What triggers an Opportunity Zone inclusion event, and how does the related-party rule work?An inclusion event is anything that reduces or cashes out your qualifying investment before the deferral ends: a sale, a gift, a distribution above your basis, or the fund losing its status. It brings deferred gain into income and ends the ten-year benefit for that part. The related-party rule is separate. It uses a 20% ownership line, and property bought from a related person does not qualify.Read the answer →Are distributions from an Opportunity Zone fund taxable?In a fund taxed as a partnership, you pay tax on the income allocated to you on your K-1, even if no cash comes out. A cash distribution is generally not taxed on its own. The exception that matters in Opportunity Zones: a distribution that exceeds your basis in the qualifying investment is an inclusion event and can trigger tax on your deferred gain.Read the answer →Does the ten-year Opportunity Zone step-up eliminate depreciation recapture?In most cases, yes. Hold a qualifying investment at least ten years, make the election, and your basis steps up to fair market value when you sell. For funds taxed as partnerships, the regulations step up the fund's assets too, so depreciation recapture goes away along with the capital gain, with gains from selling inventory as the main exception.Read the answer →What happens if I sell an Opportunity Zone investment before ten years?You can sell early, but you give up the ten-year exclusion on what you sell. Selling your fund interest is an inclusion event, so any deferred gain still outstanding comes due and the growth is taxed, though under current guidance that gain can often go into a new fund within 180 days. When the fund sells a property instead, it has 12 months to reinvest, and the gain flows through to investors.Read the answer →What does AI get wrong about Opportunity Zones?A lot, mostly because AI tools repeat old articles and each other. Common errors: saying the program ends in 2026, that QOZBs file Form 8996, that the 90% penalty is based on the average, that the whole sale price must be reinvested, that recapture survives the ten-year step-up, and that a 2026 deferred gain can roll into OZ 2.0. Here is each myth with the correct rule and its source.Read the answer →
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Quick answers
Shorter questions we hear on almost every call.
How do I invest in an Opportunity Zone?
Invest the gain into a Qualified Opportunity Fund within 180 days of the sale. Elect the deferral on your tax return, then report the investment each year on Form 8997. You can invest in an existing fund or, for larger gains and projects, set up your own fund. OZPros helps with both and keeps the paperwork audit-ready.
Reviewed by Ashley Tison, attorney · Updated October 2026
Can I invest in an Opportunity Zone without capital gains?
You can, but only money that comes from an eligible gain gets the Opportunity Zone tax benefits. Any other cash you put in is treated like a regular investment. Many funds accept both, and the fund tracks each piece separately.
Reviewed by Ashley Tison, attorney · Updated October 2026
Are Opportunity Zones a good investment?
Only when the deal underneath is a good deal. The tax benefit makes a strong project stronger. It does not rescue a weak one. As Ashley says, sometimes the juice ain't worth the squeeze, and part of our job is telling you when a strategy doesn't pencil.
Reviewed by Ashley Tison, attorney · Updated October 2026
Which areas will be Opportunity Zones under OZ 2.0?
States nominate new tracts from Treasury's eligible list, and Treasury certifies them. The new zones take effect January 1, 2027. The OZPros map tracks every state's filing, so you can see what has been nominated, published, and certified, and look up any address.
Reviewed by Ashley Tison, attorney · Updated October 2026
What does OZPros do?
OZPros is an Opportunity Zone education and advisory firm founded by Ashley Tison, known as the OZ Sherpa. We help investors, CPAs, and developers use Opportunity Zones to defer and reduce capital gains taxes. We set up the fund, keep it compliant for the full hold, and run live Q&A sessions with Ashley.
Reviewed by Ashley Tison, attorney · Updated October 2026
Do you work with my CPA or financial advisor?
Yes. Many of our clients come through their CPA, attorney, or wealth advisor. Your advisor stays your advisor. We handle the Opportunity Zone structure, documentation, and compliance, and we keep them in the loop every step. Your own tax preparer still files your return.
Reviewed by Ashley Tison, attorney · Updated October 2026
How do I get started?
Book a free 15-minute call. We look at what you sold, when your 180-day window closes, and whether an Opportunity Zone makes sense for you. If it does, the next step is usually a Blueprint strategy session with Ashley.
Reviewed by Ashley Tison, attorney · Updated October 2026
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