Some high-earning investors who deferred capital gains taxes through a special set of funds will soon have a tax bill coming due.
Authorized by the Tax Cuts and Jobs Act of 2017, Opportunity Zones are economically distressed communities nominated by states and certified by the Treasury Department. To encourage investment in so-called Qualified Opportunity Funds — created to invest in those specified areas — Congress included several tax incentives related to capital gains.
Investors who remain in the fund for 10 years generally won't owe taxes on any gains earned on their investment.
Majority of Investors Are Individuals
As of the end of 2024, there were about 12,800 Qualified Opportunity Funds in existence, with roughly 41,000 investors in them.
About 85% of the investors are individuals; the remainder are corporations.
Investors who got in by the end of 2019 or 2021 were also eligible for a 15% or 10% step-up in basis, respectively.
The end of this year marks the close of the deferral period — and all gains will become taxable as of December 31, 2026.
Boosting Rural Investments
The next round of designated Opportunity Zones will take effect in 2027, at which point investors will be entitled to a five-year capital gains deferral.
Investing in funds focused on rural areas comes with an extra tax benefit — those investors would get a 30% step-up in basis on their originally deferred gains after five years.
