Selling your fund interest
Selling all or part of your qualifying investment is an inclusion event (Treas. Reg. 1.1400Z2(b)-1(c)). What you owe depends on where you are in the timeline:
- Original-program investors after December 31, 2026: the deferred gain has already been taxed, and your basis went up by that amount. A sale before ten years taxes the growth the normal way.
- OZ 2.0 investors before year five: the deferred gain comes due with the sale, without the 10% or 30% step-up, and the growth is taxed too.
- OZ 2.0 investors between years five and ten: the deferred gain has already been included with the step-up. The growth is taxed when you sell.
Selling part of your interest triggers these rules only for the part you sell. The rest keeps its clock.
Rolling the gain into a new fund
Gain from an inclusion event can be eligible for a new deferral. Notice 2026-40 says the 180-day window for that gain starts on the date of the inclusion event, and a new holding period starts with the new investment. Under OZ 2.0, that means a fresh five-year deferral and a new ten-year clock.
Treasury can apply its anti-abuse rules to round trips set up mainly for the tax result. Ashley's line on this: "You need to have a compelling business reason." Make sure there is one for the sale and the new investment.
When the fund or QOZB sells the property
Your ten-year clock runs on your fund interest, not on the building. If the fund sells a property early, you still hold your interest. Two things happen:
- The gain on the sale is taxable before ten years and flows through to investors on the K-1.
- The fund has 12 months to reinvest the proceeds in qualifying property. During that time, the proceeds count toward the 90% test if they are held in cash or short-term debt (Treas. Reg. 1.1400Z2(f)-1(b)).
Ashley flags one catch when a QOZB sells: "One of the unfortunate things about selling is that you don't get a new working capital safe harbor for that money." His rule of thumb is to send the proceeds up to the fund and down into a new QOZB within the 12 months, which can start a fresh 31-month plan, instead of reinvesting inside the old one.
Starting in 2027, any new property has to qualify under the new map rules. Ashley's view is that a fund with a property in a tract that made the new map should usually wait until after January 1, 2027 to sell, so the next investment can use OZ 2.0. Each situation is different.
Is it worth it?
In Ashley's words, "It depends, just like pretty much everything in the OZ world." Under the original program, an early exit was costly because the deferral was fixed. Under OZ 2.0, the ability to roll gain into a new fund changes the math. Compare three numbers before you sell: the tax now, the tax if you hold to ten years, and the result if you roll the gain into a new fund. A Blueprint session puts all three in writing.