The Qualified Opportunity Zone (QOZ) program has been a game-changer for investors looking to defer and reduce capital gains taxes while supporting economic development in underserved communities. However, as we approach the program’s expiration, investors, tax professionals, and business owners must take proactive steps to maximize tax benefits before key deadlines arrive.
With the December 31, 2026, sunset date for capital gains deferrals rapidly approaching, now is the time to reassess Qualified Opportunity Fund (QOF) investments, explore alternative strategies, and develop a tax plan that minimizes liabilities and maximizes opportunities. This guide will break down the critical deadlines, key tax implications, and smart strategies to prepare for the QOZ expiration.
The QOZ program was introduced under the Tax Cuts and Jobs Act of 2017 to encourage long-term investments in low-income areas across the U.S. Investors could roll over capital gains into Qualified Opportunity Funds (QOFs), benefiting from tax deferral and, in some cases, permanent exclusion of gains.
However, the program is approaching major expiration dates that will significantly impact taxpayers who have leveraged these incentives:
For investors and tax professionals, these deadlines highlight an urgent need for strategic tax planning to manage capital gains exposure and optimize financial outcomes.
The end of the QOZ program brings several tax considerations that investors must be prepared for:
The main QOZ tax benefit—the ability to defer capital gains by reinvesting them into a QOF—will expire on December 31, 2026. This means that any deferred capital gains from previous investments must be recognized and taxed in 2026, regardless of whether the investment remains in the fund.
Initially, the program allowed investors who held QOF investments for at least five or seven years to exclude 10% or 15% of the deferred gain from taxation. However, because these holding period requirements could no longer be met before the 2026 inclusion deadline, these benefits have effectively expired.
A major incentive remains: Investors who hold QOF investments for at least 10 years can still sell their QOF interest completely tax-free—but this only applies to appreciation beyond the initial deferred gains.
With the QOZ designation expiring in 2028, any new investments made before this date can still qualify for this permanent capital gains exclusion—making 2025 and 2026 crucial years for tax planning.
With limited time left to capitalize on QOZ benefits, investors and tax professionals should consider the following strategies:
If clients already have capital gains invested in a QOF, it’s essential to assess performance and liquidity needs before 2026. Key considerations include:
Although the deferral and reduction benefits are phasing out, investing in a QOF before 2026 still allows capital gains to grow tax-free if held for at least 10 years.
For investors looking to reduce future tax burdens, new QOF investments made in 2025 and 2026 can still generate long-term, tax-free growth.
Since deferred gains must be recognized by 2026, investors should explore other ways to mitigate tax exposure:
Given that deferred capital gains will become taxable in 2026, planning ahead ensures no surprises. Strategies include:
As the QOZ expiration approaches, tax professionals should ensure that all investments are properly reported and compliant with IRS regulations.
To qualify for QOZ benefits, QOFs must meet strict investment and reporting requirements. Tax professionals should regularly audit fund compliance to avoid disqualification risks.
There have been discussions in Congress about extending or modifying the QOZ program. While no new legislation has passed, staying informed about potential changes is crucial.
The countdown to the QOZ expiration is well underway, but with careful planning, investors can still leverage remaining tax benefits while mitigating risks. Tax professionals who stay ahead of these changes will play a vital role in helping clients navigate this transition smoothly.
With major QOZ tax changes on the horizon, tax professionals need robust planning tools to help clients optimize their investments and mitigate tax liabilities. TaxPlanIQ provides:
As the Qualified Opportunity Zone expiration nears, proactive planning is essential to maximize remaining benefits and develop alternative tax strategies. Ensure your clients are prepared—sign up for a free demo of TaxPlanIQ today!