1031 Exchanges vs. Qualified Opportunity Zones

Qualified Opportunity Zones

Many people are excited about the new qualified opportunity zones. Congress created this tax provision to incentivize investors to move their capital into areas that are economically challenged. The state governors have designated census tracts, geographic areas within their state, that they want to drive capital to. These are called the qualified opportunity zones.

Benefits of Qualified Opportunity Zones

You can take your gains from the sale of a business, stocks, real estate, etc. and reinvest those profits through a qualified opportunity fund and defer the recognition of the gain until December 31st, 2026. But you will eventually recognize the gain on December 31st, 2026.

There is an incentive to do this because if you hold the investment for 5 years you have 10% of your gains forgiven, and if you hold the investment for 7 years you have another 5% of your gains forgiven. But come December 31st, 2026, phantom income may be taxed. You may have to pay the piper for these deferred gains but you may not have the liquidity to do so. This is going to create some potential problems in 2026.

1031 Exchanges

For real estate investors the better alternative may still be to use the 1031 provision, because under 1031, the gain is perpetually deferred. There is no paying the piper in 2026 under 1031. For people that are selling businesses, stocks, and other assets that cannot be exchanged under 1031, the new qualified opportunity zone is an awesome tax planning opportunity. For the traditional real estate investors, the old tried-and-true 1031 is still perhaps the more advantageous way to go.

  • Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.


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