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Opportunity Zones Fund Investing

A Game-Changing Solution

Opportunity Zones, introduced in the tax code under IRC Sections 1400Z-1 and 1400Z-2, provide a powerful alternative for investors facing a blown exchange. These zones are economically distressed areas identified for special tax benefits to attract capital investments and revitalize underserved communities. Opportunity Zone funds investments can be used stand alone, or in combination with 1031 Exchanges; however, you cannot exchange into an opportunity zone fund itself.

Key Benefits of Opportunity Zone Funds (OZ Funds)

Deferred Gains

Postpone capital gains taxes by reinvesting in OZ Funds.

Tax Exclusion

Completely exclude new gains on assets held for at least 10 years.

By reinvesting proceeds into OZ Funds, investors can align financial goals with impactful community investments.

How Opportunity Zone Funds Work

The incentives offered by Opportunity Zones are time-sensitive:

5-Year Investment

Enjoy a 10% reduction in deferred gains.

7-Year Investment

Benefit from a 15% reduction in deferred gains.

Post-2026

Pay capital gains tax on the remaining 85% of deferred gains.

10-Year Investment

Obtain a 100% tax exclusion on new gains.

Opportunity Zones offer a pathway for blown exchanges, ensuring your investments can still yield valuable tax advantages.

Creative Strategies with 1031 Exchanges and Opportunity Zones

Even if your 1031 exchange failed, combining these two strategies can provide smart alternatives:

01

1031 Exchange into OZ: A Fallback Solution

If replacement properties were not identified within the 45-day window, redirect proceeds into an OZ Fund instead. You have an additional 135 days (for a total of 180 days from the sale) to complete the OZ Fund investment process. Why it Works: Only the gain—not the full proceeds—needs to be reinvested into the OZ Fund.

02

Combining 1031 Exchange and OZ Investments

For those who successfully completed a 1031 exchange into a qualifying replacement property, deferred gains from other sources can still be invested into OZ Funds to substantially improve the property. This dual approach extends tax deferral while offering additional OZ tax benefits.

03

Maximizing Both Strategies

Split proceeds between a 1031 exchange and an OZ Fund to optimize tax deferral and gain exclusions. This strategy ensures proportional tax advantages and financial flexibility.

What You Cannot Do

Some actions won’t qualify, such as:

Using OZ Funds as Replacement Property

OZ Funds do not meet the “like-kind property” requirement under Section 1031.

Missing Deadlines

Reinvesting outside the 180-day window disqualifies OZ investments.

Understanding these limitations is key to preventing further missteps and ensuring compliance with IRS regulations.

Securities offered through Realized Financial, Inc. (“Realized”), a broker/dealer and member FINRA/SIPC. DontPayTax.com is not affiliated with Realized. Realized does not offer tax or legal advice. This site is published for residents of the United States only. Representatives may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed until appropriate registration is obtained or exemption from registration is determined. Not all of services referenced on this site are available in every state and through every representative listed. For additional information, please contact Realized’s Compliance department at 512-472-7171.

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IMPORTANT DISCLOSURE: The tax-related information contained on this site should not be construed as tax or legal advice specific to your situation, and should not be relied upon in making any business, legal or tax-related decision. Please consult your tax or legal adviser for further information. We welcome the inclusion of your tax adviser to further determine what type of capital gains tax strategy works best for your unique set of tax circumstances. This website is neither an offer to sell nor a solicitation of an offer to buy any security which can be made only by a prospectus, or offering memorandum, which has been filed or registered with appropriate state and federal regulatory agencies, and sold only by broker dealers and registered investment advisors authorized to do so. 1031 exchange services are provided by a qualified intermediary that is a wholly owned subsidiary of Accruit LLC, an Inspira Financial solution. The provider of these materials is not an agent or employee of, nor otherwise affiliated with, the qualified intermediary. The above coverages and processes are available through Accruit LLC.

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