A 1031 Exchange Isn’t the Only Way to Defer Capital Gains Tax Anymore. Here’s How Opportunity Zones Compare
Most investors reaching for a capital gains deferral reach for the same tool, but a rewritten set of tax rules now covers gains from stock and business sales that a 1031 exchange cannot touch, with a twist that can make…
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Sell a rental building, a block of long-held stock or a family business near retirement, and the capital gains bill can feel like a penalty for being patient. Most investors know one way to delay that bill: the 1031 like-kind exchange for real property. A second option in the rules covers more kinds of sales.
The Qualified Opportunity Zone rules were rewritten by the One, Big, Beautiful Bill Act (OBBBA, Public Law 119-21, signed July 4, 2025). They let investors defer gains from almost any sale, and OBBBA extended the program past its original 2026 cutoff by allowing deferral elections after December 31, 2026.
How a 1031 Exchange Works, and Where It Stops
Section 1031 lets you swap one investment property for another without paying tax on the gain. “Like-kind” just means real property traded for real property, such as an apartment building for farmland. The law covers only real property held for business use or investment. It bars real property held primarily for sale, like a developer’s inventory, and it treats U.S. and foreign real estate as different kinds of property (26 U.S.C. § 1031(a)(2) and (h)).
The deadlines are tight. Under the US Congress’s Internal Revenue Code, you must identify replacement property within 45 days of handing over the old property and receive it within 180 days, or by your return due date if that comes first. Stock and business interests don’t qualify. To defer the entire gain, generally all of the sale proceeds have to go into the new property.
Opportunity Zones Defer Gains From Stock, Businesses and Real Estate
A Qualified Opportunity Fund (QOF) is a corporation or partnership that invests in designated census tracts called opportunity zones. Under 26 U.S.C. § 1400Z-2(a)(1), gain from selling any property to an unrelated person can be deferred to the extent you invest it in a QOF during the 180-day period beginning on the sale date.
“Any property” is what makes this tool so broad. It can be appreciated stock, a business or real estate. You also only have to invest the gain. Your original capital can go back in your pocket.
The timing works for anyone selling this fall. Notice 2026-40 says a taxpayer with gain realized on, before or after December 31, 2026 who invests in a QOF on or after January 1, 2027 can choose deferral, as long as the investment is made on time. New zone designations also take effect January 1, 2027.
What OBBBA Changed for Investments Made After December 31, 2026
For new QOF money, the deferred gain becomes taxable at the earlier of two dates: when you sell the investment, or 5 years after you invested (Notice 2026-40).
Holding for at least five years earns a bonus. Under § 1400Z-2(b)(2)(B) and (C), your basis increases by 10% of the deferred gain, or 30% for a qualified rural opportunity fund (Notice 2026-40). Basis is your cost for tax purposes, and you pay tax only on value above it. So a higher basis means that piece of the gain is never taxed.
A 10-Year Hold Can Make Fund Growth Tax-Free
The US Congress’s Internal Revenue Code lets an investor who holds a QOF interest for at least 10 years choose a basis equal to the asset’s sale price. Any growth inside the fund then escapes federal capital gains tax. Notice 2026-55 notes this rule now has a 30-year limit. It asks how to value investments still unsold 30 years after they were made (Notice 2026-55). State tax treatment can differ.
1031 Exchange vs. Opportunity Zone Fund, Side by Side
| Feature | 1031 Exchange | QOF (after 2026) |
|---|---|---|
| Eligible gains | Real property held for business or investment | Gain from sale of any property to an unrelated person |
| Must reinvest | Full value, to defer all gain | Only the gain |
| Deadlines | 45 days to identify, 180 days to close (US Congress, Internal Revenue Code) | 180-day period to invest |
| Deferral length | Until replacement property is sold | Earlier of sale or 5 years |
| Permanent exclusion | None by itself | 10% or 30% basis boost; tax-free growth after 10 years (US Congress, Internal Revenue Code) |
| Property type | U.S. real estate for U.S. real estate | Fund interest in opportunity zone businesses or property |
Illiquidity, Asset Tests and Unfinished Rules
QOF investments are illiquid, so you can’t easily sell out early. They also carry real development risk, since many fund projects are new construction or major renovations. A fund must keep 90% of its assets in qualifying property or pay a monthly penalty (§ 1400Z-2(f)).
The rules are still being written. Notice 2026-40 announced upcoming proposed regulations (Notice 2026-40), and Notice 2026-55 asks for public comments by November 23, 2026. Proposed regulations published September 11, 2026 would require QOFs to file annual information returns on Form 8996 and send statements to investors who sell (REG-116506-25).
Which Investor Each Tool Fits
A 1031 exchange suits real estate investors who plan to stay in real estate and want to keep trading up until death. A QOF can fit other investors with a large gain: sellers of stock or a business, and property owners who want their original capital back while investing only the profit. Before committing, it’s worth running these numbers with a qualified tax professional or trusted tax advisor.
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Vilma Rios is a tax professional and tax content contributor with more than 15 years of experience in tax and accounting. She specializes in federal tax research, tax education, and translating complex tax rules into clear, practical information for individuals, families, and small-business owners.
Vilma is a Content Tax Contributor II with the National Association of Tax Professionals (NATP), where she contributes to tax education and professional content. She has also presented tax information through webinars, including Spanish-language tax education, and has appeared on Telemundo 47 discussing tax topics and helping viewers understand important tax-filing requirements.
Her experience also includes tax and accounting work, tax research, IRS-related matters, and public tax education. While in college, Vilma volunteered in an IRS-sponsored tax assistance program and was recognized for her community service by local and state officials.
Known as “Your Tax Geek,” Vilma is passionate about making taxes easier to understand and helping people navigate an increasingly complex tax system.
