Trapped by Capital Gains? Opportunity Zone Funds Provide a Way Out
Investing in funds to fix up a troubled neighborhood can do some good for the area in question and for your own tax situation.

It’s tough to think of a highly appreciated asset as the problem child in a portfolio. The goal is to choose investments that will flourish, after all. And those strong performers are typically the ones you love best and hold onto the longest.
But things can get complicated when it’s time to let go — when that stock stops growing and you’re ready to sell, or when you’re preparing to part with a valuable business or piece of property.
That’s because the federal government likes winners, too — and thanks to capital gains taxes, you could end up sharing a hefty portion of your profit with the IRS.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
But there are strategies that can help.
I’ve written here before about using a 1031 Exchange or a Deferred Sales Trust to defer capital gains taxes when selling real estate. But now a newer strategy is giving the 1031 and DST some competition; it’s called a Qualified Opportunity Zone Fund. And you can use it with any investment that will trigger capital gains.
Like any investment strategy, it comes with risks, and it’s not for everyone. But for those who feel trapped by capital gains, the tax savings and potential for profit make it worth looking into.
What is a Qualified Opportunity Zone Fund?
- Opportunity Zone Funds became part of the tax code with the Tax Cuts and Jobs Act of 2017. The funds are created by partnerships or corporations that invest in eligible properties within designated Opportunity Zones.
- The IRS defines an Opportunity Zone, or O-Zone, as an “economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment.” In other words, the communities on the receiving end of these funds hope to benefit from revitalization, while investors can reap tax benefits by putting their money toward those improvements.
- In order to qualify, an Opportunity Zone Fund must invest at least 90% of its capital in O-Zone property.
How does it work for the investor?
- When an investor sells an asset, he or she can roll any amount of the gain into an Opportunity Zone Fund within 180 days of the sale. The investor can then defer capital gains taxes on that amount until Dec. 31, 2026, or until the Opportunity Zone Fund investment is sold or exchanged (whichever comes first).
- An investor who keeps the money in the Opportunity Zone Fund for at least five years can defer payment of capital gains and exclude 10% of the taxable gains from the original amount invested.
- If the investor keeps the money in the fund for at least seven years, he or she can exclude another 5% (for a total of 15%) of the taxable gains from the original amount invested.
- Investors who hold the money in the fund for at least 10 years can exclude 15% of the original amount invested. In addition, any accrued capital gains generated from the investment are 100% tax exempt.
So, let’s say an investor sells an asset and has a $100,000 tax liability. By holding the money in an Opportunity Zone Fund for 10 years, the investor would avoid paying capital gains taxes for a decade, reduce his liability to $85,000, and any gain on the money invested in the fund would be tax-free.
What are the risks?
Because this is a new investment strategy, there are some uncertainties, including:
- The IRS and Department of Treasury are still working on the specifics of how Opportunity Zone Funds will work over time — both for investors and those in charge of the funds. So, you may enter into this investment with questions that can’t be answered just yet. (That doesn’t mean you shouldn’t ask, though.)
- Because the areas earmarked for improvement are distressed, recovery may not go as quickly as planned — and a fund won’t gain in value if the targeted community and its businesses aren’t gaining in value. So, like any investment, there’s no guarantee you’ll make money.
- The tax plan is currently set to sunset on Dec. 31, 2026. If it isn’t extended, investors would be required to begin paying taxes on accrued capital gains after this date, regardless of how long they hold on to the fund as an investment.
Did I mention that this isn’t for everybody? As a matter of fact, you must be an “accredited” investor in order to participate, meaning investors who have a net worth exceeding $1 million and/or an annual income exceeding $200,000 individually or $300,000 for joint households.
However, it can be an appealing alternative for those who want to diversify, who might like the idea of an investment with social impact or are seeking a long-term investment with tax benefits.
If you think it could be a fit with your overall financial plan, be sure to discuss the pros and cons with your tax or financial professional. Ask for a comparison of the benefits of investing in Opportunity Zones vs. a 1031 Exchange or Deferred Sales Trust. And talk about the funds available and how to choose the right one.
Currently, the number of funds is limited, but once the Treasury Department finalizes its regulations, you can expect to see more — and more investor interest.
Kim Franke-Folstad contributed to this article.
This material is for informational purposes only. It is not intended to provide tax, accounting or legal advice or to serve as the basis for any financial decisions. Individuals are advised to consult with their own accountant and/or attorney regarding all tax, accounting and legal matters. Securities offered only by duly registered individuals through Madison Avenue Securities, LLC (MAS), member FINRA/SIPC. Advisory services offered only by duly registered individuals through Global Wealth Management Investment Advisory (GWM), a Registered Investment Advisor. MAS and GWM are not affiliated entities. For accredited investors only.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

C. Grant Conness is the Co-Founder and Managing Director of Global Wealth Management (www.askglobalwealth.com), an SEC Registered Investment Adviser. He is the co-host of "The Global Wealth Show" airing on NBC, CBS, ABC and FOX. Grant is a regular Kiplinger contributor. He has been quoted in major publications such as "The Wall Street Journal." He currently resides in Fort Lauderdale with his wife, Jessica, and their four children.
-
Ask the Editor, October 17: QCDs and Tax-Planning
Ask the Editor In this week's Ask the Editor Q&A, Joy Taylor answers more questions about the use of qualified charitable distributions (QCDs) in end-of-year tax planning.
-
You May Want To Think Twice Before Selling These Four Assets in Retirement
Sitting on little gold mines? It's natural to want to cash out when you retire. Here’s why you may not want to.
-
Treat Home Equity Like Other Investments in Your Retirement Plan: Look at Its Track Record
Homeowners who are considering using home equity in their retirement plan can analyze it like they do their other investments. Here's how.
-
Why Does It Take Insurers So Darn Long to Pay Claims? An Insurance Expert Explains
The process of verification, investigation and cost assessment after a loss is complex and goes beyond simply cutting a check.
-
Two Reasons to Consider Deferred Compensation in the Wake of the OBBB, From a Financial Planner
Deferred compensation plans let you potentially lower your current taxes and help to keep you out of a higher tax bracket. It's important to consider the risks.
-
Financial Fact vs Fiction: The Truth About Social Security Entitlement (and Reverse Mortgages' Bad Rap)
Despite the 'entitlement' moniker, Social Security and Medicare are both benefits that workers earn. And reverse mortgages can be a strategic tool for certain people. Plus, we're setting the record straight on three other myths.
-
The End of 2%? An Investment Adviser's Case for Why the Fed Should Raise Its Inflation Target
Yes, inflation can be tough on those living on fixed incomes, but protecting us from it too strictly could do our overall economy more harm than good.
-
Medicare Open Enrollment: Why You Need to Pay Extra Attention to Part D, From a Financial Adviser
The lowest premium for prescription drug coverage might not actually save you the most money. Make sure you take copays into consideration and do the math.
-
How the One Big Beautiful Bill Will Change Charitable Giving
Taxpayers who don't itemize will be able to take a bigger deduction for donations, which could boost giving. However, high-income donors could see their tax benefits reduced.
-
A 'Fast, Fair and Friendly' Fail: Farmers Irks Customers With Its Handling of a Data Breach
Farmers Insurance is facing negative attention and lawsuits because of a three-month delay in notifying 1.1 million policyholders about a data breach. Here's what you can do if you're affected.