Opportunity zone taxes 2026: Deferred gains bill is coming due

Opportunity zone taxes 2026 are about to move from planning topic to real bill for many high-income investors. People who rolled capital gains into Qualified Opportunity Funds have been able to postpone taxes for years, but that deferral ends on Dec. 31, 2026, according to Jason Watkins, a partner at accounting firm Novogradac & Co.

The dollar amount is not small. Deferred gains tied to the program totaled $75 billion at the end of 2024, according to a working paper from the Treasury Department’s Office of Tax Analysis.

Opportunity Zones were created under the 2017 Tax Cuts and Jobs Act. They are economically distressed communities nominated by states and certified by the Treasury Department. Qualified Opportunity Funds invest in those areas through projects that can include housing, property improvements, startup businesses and other eligible local investments, according to Treasury research.

What are opportunity zone taxes in 2026?

Capital gains are profits from selling an investment for more than its purchase price. Under the Opportunity Zone rules, investors could put realized gains into a Qualified Opportunity Fund and delay paying tax on those gains until the end of 2026, unless they exited earlier or lost eligibility.

The program also offered a second benefit for investors who stayed in the fund long enough: gains earned inside the Opportunity Zone investment can generally be tax-free after a 10-year holding period. Watkins said that feature is likely the more valuable incentive for many participants, which may keep investors from selling just to raise cash for taxes.

“Regardless of when from 2018 to present investors have deferred gains ... the deferral period will end on Dec. 31, 2026, making all the gains taxable as of that date,” Watkins said.

Who used Qualified Opportunity Funds?

There were about 12,800 Qualified Opportunity Funds at the end of 2024, with roughly 41,000 investors, according to the Treasury Department’s research. About 85% of those investors were individuals, while the rest were corporations. The typical individual investor had adjusted gross income of $738,000 in 2024, the research found.

The size of the 2026 tax bill will depend partly on when an investor entered the program. Investors who put realized gains into a Qualified Opportunity Fund by the end of 2019 can receive a 15% step-up in basis on those deferred gains, assuming they remain eligible. In plain English, that means only 85% of the deferred gain is taxed.

Investors who entered by the end of 2021 can receive a 10% basis step-up, meaning 90% of the deferred gain is taxable. Investors who came in after those deadlines received the deferral benefit but do not get that extra reduction on the original deferred gain.

Ryan Firth, a certified financial planner and certified public accountant in Bellaire, Texas, said investors should know the bill is coming. “Hopefully they’ve planned for it and realize they’ll owe taxes on these gains,” Firth said. “And hopefully they’ve set aside money to be able to pay the taxes.”

Watkins said some funds may have arranged ways for investors to access cash for taxes through debt financing or distributions. He also said he expects few investors to cash out just to cover the tax bill because a 10-year holding period can allow a potential tax-free exit on the fund investment.

How do Opportunity Zones change in 2027?

President Donald Trump’s “big beautiful bill,” enacted last summer, made Opportunity Zones permanent, according to the Economic Innovation Group, the think tank that developed the fund concept. The law calls for new zones every 10 years, with the next set scheduled to begin Jan. 1, 2027, according to the group.

For the next version of the program, Watkins said all investors will get a five-year capital gains deferral and a 10% basis step-up after that period, regardless of exactly when they invest. Funds focused on rural areas will carry a larger benefit: a 30% basis step-up on originally deferred gains after five years, according to Watkins.

This story draws on original reporting from CNBC.