Based on QOZ rules for investments made after December 31, 2026 (enacted July 2025): 5-year deferral of original capital gain • 10% step-up in basis at year 5 • Tax-free exit on QOZ appreciation after 10+ years. These assumptions reflect legislative changes enacted in July 2025 to the original IRS Opportunity Zones program and may change with future legislation. Consult a qualified tax advisor for your situation.
Your Capital Gain
The realized capital gain eligible for QOZ deferral. Must be invested within 180 days.
Investment Assumptions
Same assumed return for both scenarios to isolate the tax advantage. Not a projection or guarantee.
Minimum 10 years required for tax-free exit on QOZ appreciation.
QOZ Benefits (Rules from 2027)
Reduces the taxable portion of the deferred gain at recognition.
Original gain is recognized after this period. Tax paid from the investment balance.
Scenario A: Realize Gain & Reinvest
Taxes Paid Immediately
After 10 Years at 6%
Scenario B: Qualified Opportunity Zone Fund
At Year 5: Deferred Gain Recognized
At Year 10: Tax-Free Exit
The Bottom Line
The QOZ route produces $313,403 more in after-tax wealth over 10 years.
By deferring the gain, receiving a 10% basis step-up, and exiting tax-free after 10 years, the QOZ investor retains significantly more capital — even after paying tax on the deferred gain at year 5.
How the Three QOZ Benefits Stack
Deferral
Your full pre-tax gain compounds for 5 years before any tax is owed.
Basis Step-Up
A 10% step-up reduces your taxable gain, saving $26,870 in taxes.
Tax-Free Exit
All appreciation on the QOZ investment is permanently excluded from federal income tax after 10 years.
What is a Qualified Opportunity Zone Fund?
A Qualified Opportunity Zone (QOZ) fund is an investment vehicle organized as a corporation or partnership that deploys at least 90% of its assets into designated economically distressed communities. Created under the Tax Cuts and Jobs Act of 2017, the program incentivizes long-term investment in these areas by offering tax benefits: deferral of existing capital gains, a partial reduction in the deferred gain through basis step-up, and — most powerfully — permanent exclusion from tax on any new appreciation if the investment is held for at least 10 years. For the full overview of how the program works, see the IRS Opportunity Zones resource page.
Key Considerations
180-Day Investment Window
Capital gains must be invested in a QOZ fund within 180 days of the sale that generated the gain. The clock starts on the date of the sale, not the date you receive proceeds. See IRS Opportunity Zones for full eligibility and timing rules.
Illiquidity & Long Hold
QOZ investments are illiquid with no public secondary market. To receive the tax-free exit benefit, you must hold for at least 10 years. Early exit forfeits the exclusion on appreciation.
Legislative Risk
The tax benefits shown are based on opportunity zone rules enacted in July 2025 and are not guaranteed. Future legislation could change deferral periods, step-up percentages, or eligibility criteria.
Investment Risk
QOZ funds invest in economically distressed areas, which may carry higher investment risk. Tax benefits do not eliminate the risk of loss. Past performance does not guarantee future results.
Only Capital Gains Qualify
Only capital gains (not ordinary income) are eligible for QOZ deferral. Both short-term and long-term capital gains may qualify, but the tax rates differ.
Tax Due at Year 5
The deferred gain is recognized after 5 years. This calculator assumes the tax is paid from the investment balance. If paid from outside funds, the QOZ advantage would be even larger.
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