Qualified Opportunity Zone (QOZ) Tax Guide 2026-2030

Capital gain deferral, basis increase, and exclusion of QOF appreciation. 180-day reinvestment window. Legacy December 31, 2026 inclusion date and the amended rules for investments after 2026 (P.L. 119-21). Form 8997 annual reporting. Last verified: October 29, 2026.
IRC 1400Z-2Form 8997180-day reinvestment windowDec 31 2026 legacy inclusion dateP.L. 119-21 sec. 70421
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Two Sets of Rules: Before and After December 31, 2026
Investments made on or before December 31, 2026 (legacy rules): deferred gain is included in income in the taxable year that includes the earlier of the sale or exchange of the QOF investment or December 31, 2026. IRC 1400Z-2(b)(1), before amendment by P.L. 119-21. This applies whether or not you sold, so the tax on legacy deferred gain is reported on the 2026 return. Investments made after December 31, 2026 (P.L. 119-21, section 70421(c)): the December 31, 2026 date is removed. Gain is included on the earlier of the sale or the fifth anniversary of the investment. The 10-year basis step-up to fair market value is separate and is not cut off by December 31, 2026. IRC 1400Z-2(b)(1) as amended, (c).
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Deferral
Defer eligible gain by investing it in a QOF within 180 days. Legacy: deferred to the earlier of sale or December 31, 2026. After 2026: deferred to the earlier of sale or the fifth anniversary. IRC 1400Z-2(a), (b).
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Basis Increase
Legacy: 10% after 5 years (invested by December 31, 2021) plus 5% after 7 years (invested by December 31, 2019). After 2026: 10% after 5 years, or 30% for a qualified rural opportunity fund. IRC 1400Z-2(b)(2)(B).
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Exclusion
After 10 years, elect a basis equal to fair market value so appreciation is never taxed. Legacy: dispositions through December 31, 2047. After 2026: FMV basis at sale, or at the 30th anniversary if held longer. IRC 1400Z-2(c).
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QOZ Tax Benefit Calculator

Only the gain amount needs to be invested. Capital gain (including qualified section 1231 gain) can be deferred; ordinary income cannot. IRC 1400Z-2(a)(1)(A); Treas. Reg. 1.1400Z2(a)-1(b)(11).
Investments after December 31, 2026 follow the amended IRC 1400Z-2 (P.L. 119-21 sec. 70421). The 5-year and 7-year increases under the legacy rules require a hold of 5 or 7 years by December 31, 2026.
The 30% increase applies only to a qualified rural opportunity fund for amounts invested after December 31, 2026. IRC 1400Z-2(b)(2)(B)(iii), (C).
Whole years from the investment date to the sale of the QOF interest. The exclusion requires at least 10 years. IRC 1400Z-2(c).
Projected fair market value of the QOF interest when sold. Appreciation is excluded from tax if the 10-year election applies.
The gain included is the lesser of the deferred gain or the investment's value on the inclusion date, less basis. IRC 1400Z-2(b)(2)(A). Leave blank if the value has not fallen below the amount invested.
20% is the statutory top long-term rate (IRC 1(h)(1)(D)); 3.8% is the net investment income tax (IRC 1411(a)(1)). The 15% bracket threshold is indexed and not modeled. State tax is excluded.
Last verified: October 29, 2026. No inflation-indexed amounts apply.
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QOZ Timeline & Key Rules

Day 0 - Sale of appreciated asset
Eligible gain recognized
You have 180 days from the date the gain would otherwise be recognized to invest in a QOF. IRC 1400Z-2(a)(1)(A). Gain passing through a partnership, S corporation or trust can have a different 180-day start date; see Treas. Reg. 1.1400Z2(a)-1(b)(7) and (c)(8)-(9). Under the legacy rules no election is available for a sale or exchange after December 31, 2026; the amended statute removes that limit for investments after December 31, 2026.
Within 180 days
Invest in a Qualified Opportunity Fund
Only the gain amount needs to be invested, not the full proceeds. The QOF is a corporation or partnership that holds at least 90% of its assets in qualified opportunity zone property. IRC 1400Z-2(d)(1). Report the election on Form 8949 and attach Form 8997 for each year you hold a QOF investment (Instructions for Form 8824, 2025).
Year 5 of holding
Basis increase
Legacy: basis rises by 10% of the deferred gain after 5 years and by another 5% after 7 years, which in practice requires an investment by December 31, 2021 (5 years) or December 31, 2019 (7 years) because the inclusion date is December 31, 2026. After 2026: 10% (30% for a qualified rural opportunity fund) after 5 years. IRC 1400Z-2(b)(2)(B)(iii)-(iv).
December 31, 2026 (legacy) or fifth anniversary (after 2026)
Deferred gain included
Gain included equals the lesser of the deferred gain or the investment's value, less basis. Basis then increases by the gain included. Legacy investors report the gain on the 2026 return. IRC 1400Z-2(b). Investors who invest after 2026 report it in the year of the fifth anniversary or an earlier sale.
Year 10+ of holding
Appreciation exclusion
Elect a basis equal to fair market value so appreciation on the QOF investment is not taxed. Legacy investments: the election is not available for dispositions after December 31, 2047 (Treas. Reg. 1.1400Z2(c)-1(c)). After 2026: FMV basis at sale if before the 30th anniversary, otherwise FMV at the 30th anniversary. IRC 1400Z-2(c).
New zone designations
Rolling 10-year designations
The first determination date for the new round of zone designations is July 1, 2026. A designation takes effect the January 1 after Treasury certifies it and lasts 10 years. IRC 1400Z-1(b), (c)(2)(C), (e). Confirm that your fund's tract is designated for the period you invest.
IRC 1400Z-1 (qualified opportunity zones; designation and effective periods); IRC 1400Z-2(a) (deferral election, 180-day period); IRC 1400Z-2(b) (inclusion date and amount, basis increases); IRC 1400Z-2(c) (10-year election); IRC 1400Z-2(d) (qualified opportunity fund, 90% test); P.L. 119-21 sec. 70421 (OBBBA - permanent opportunity zones, effective for amounts invested after December 31, 2026); Treas. Reg. 1.1400Z2(a)-1, 1.1400Z2(b)-1 and 1.1400Z2(c)-1 (regulations; 2047 limit on the legacy 10-year election); IRC 1(h)(1)(D) and 1411(a)(1) (rates); Form 8949 and Form 8997; Instructions for Form 8824 (2025); IRS Opportunity Zones Frequently Asked Questions.
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