US Qualified Opportunity Zone (QOZ §1400Z-2) Tax Simulator

Opportunity Zone funds: gain deferral and the 10-year exclusion

Reinvesting a capital gain in a Qualified Opportunity Fund (QOF) within 180 days defers tax on that gain, and the fund's own appreciation is tax-free if you hold it for at least 10 years. The tool compares this with a regular portfolio funded after tax, deducting from the QOF scenario the tax on the deferred gain, which is still owed.

How the tool calculates

• Combined rate = federal rate (23.8% by default: 20% + 3.8% NIIT) + state rate.
• QOF: the whole gain is invested and compounds at the fund's return; after 10 years or more the fund's appreciation is untaxed, otherwise it is taxed at the combined rate. The tax on the deferred gain (gain × combined rate) is then deducted.
• Regular portfolio: the gain is taxed first, the remainder compounds at the return minus 1.5 points (annual tax drag), and the profit is taxed on exit.

Example (default values)

$500,000 gain, 10 years, 8% return on both sides, 23.8% + 5% state (28.8%). QOF: $500,000 grows to $1,079,462 with no exit tax; after paying the $144,000 of deferred tax, $935,462 remains. Regular: $144,000 of tax up front, $356,000 invested at 6.5% grows to $668,261, or $578,330 net. The tool shows an advantage of $357,133 (+61.8%).

Deferred tax: what the tool assumes

Deferral is not exemption. For investments made up to 31/12/2026, the deferred gain is taxed no later than 31/12/2026. For investments from 01/01/2027 (OBBBA), it is taxed five years after the investment, with a 10% basis increase (30% for a rural fund). The tool deducts the deferred tax in full ($144,000 in the example), without the 10% basis increase: with it, that tax would fall to $129,600 and the advantage would rise to $371,533. Neither the time value of deferral nor the specific risk of QOZ funds is modelled. Estimate only, not tax advice.

Sources and dates: section 1400Z-2 of the Internal Revenue Code; reform by the OBBBA (P.L. 119-21 of 04/07/2025) and IRS transitional guidance (Notice 2026-40) for investments from 01/01/2027; 20% rate and 3.8% NIIT (IRS Topic 409 and NIIT page) (checked on 14/10/2026).

Frequently Asked Questions

When is tax on the gain deferred into a QOF due?

For investments made up to 31 December 2026, the deferred gain is taxed no later than 31 December 2026, or earlier on a sale. For investments from 1 January 2027, the OBBBA sets taxation five years after the investment. The tool deducts this tax from the QOF scenario: $144,000 in the default example.

What exactly does the 10-year exclusion cover?

It covers the appreciation of the fund investment: after 10 years of holding, its tax basis is stepped up to fair market value. In the default example, the $579,462 of fund growth escapes tax, not the original $500,000 gain.

Does deferral reduce the gain that is eventually taxed?

For investments from 1 January 2027, basis rises by 10% after five years, so 10% of the deferred gain escapes tax, or 30% for a qualified rural fund. On a $500,000 gain at 28.8%, the deferred tax drops from $144,000 to $129,600. The tool does not model this step-up.

How long do I have to reinvest the gain?

Generally 180 days from the date the gain is realised. Only the amount of the gain needs to go into the QOF, not the full sale price; that is the amount the tool invests in the fund.

Is this tool really free?

Yes, all tools on Kristools are 100% free and accessible without registration.

Is my data protected?

Yes. All processing is performed directly and securely inside your browser. No personal data is sent to our servers.