Which capital gains qualify for Opportunity Zone deferral?

An eligible gain is an amount treated as capital gain for federal income tax purposes that would be recognized before the deferral election, and that does not arise from a sale or exchange with a related person.^1,2 Section 1400Z-2(a)(1) speaks of gain from the sale or exchange of any property; the regulations limit that to capital gains, and the IRS states that ordinary gain is not eligible.^2,3

Most capital gains qualify regardless of the asset. Here is how common situations come out under the regulations.^1,4,5

There is no minimum or maximum amount and no restriction on the type of asset sold. A gain from selling public stock can fund a real estate project, and a gain from selling a building can fund an operating business.

Section 1231 gains, from selling depreciable business property and real estate held more than a year, qualify on a gross basis. The final regulations let you invest the full §1231 gain without first netting §1231 losses, and the 180-day period begins on the date of each sale.^4,5 The portion of the gain treated as ordinary income under §1245 or §1250 recapture is not eligible.⁴

For real estate, most depreciation on buildings is recovered as unrecaptured §1250 gain, which is taxed at up to 25% but remains part of the capital or §1231 gain rather than ordinary income.⁶ Confirm the split with your tax adviser using the closing statement and depreciation schedules. More detail is in §1231 gains and Opportunity Zones.

The statute excludes gains from a sale or exchange with a related person, defined by reference to §§267(b) and 707(b)(1) but with 20% substituted for 50%.^3,7 In practice, if you and the buyer share 20% or more common ownership, directly or through attribution, the gain cannot be deferred.

The rule stops investors from creating eligible gain by selling assets to their own entities. It also matters on the other side of a deal: property a QOZB buys from a related party does not count as Qualified Opportunity Zone business property. See related-party rules in Opportunity Zone deals.

For most gains the 180 days start on the date the gain would be recognized, usually the trade or closing date. Special rules move the start for certain gains.^1,5

Short-term and long-term gains from the same day can be invested together or separately. Track each gain, its amount and its start date, because each investment is reported separately on Form 8997.⁸ More in the 180-day investment rule and partnership and K-1 gains.

• Straddles: gains from positions that are or have been part of a straddle are generally not eligible, subject to limited exceptions in the regulations; confirm the treatment of any hedged position with your adviser.⁹
• Home sales: gain excluded under §121 is not recognized, so it cannot be deferred. Gain above the exclusion is capital gain and can qualify. Treasury's Notice 2026-55 asks for comments on interim gains, including single-family home sales, so watch for guidance.¹⁰
• Gains already deferred: a gain deferred under another provision, such as a §1031 exchange, is not recognized and cannot be invested until it is. Boot recognized in an exchange can be eligible gain.
• Capital losses: you do not have to net capital losses against the gain before investing. The losses remain available under the normal capital loss rules.

A deferred gain keeps its tax attributes. When it is included at year 5 or on an earlier sale, it is taxed as short-term or long-term according to its original character, at the rates in effect for that later year.^4,6

Yes. You can elect to defer some or all of one or more eligible gains, and each amount you invest is its own investment with its own date.¹ Investors often defer only part of a gain to keep cash for the year-5 tax or for other needs.

Illustrative example: an investor sells a stock position on March 1 with a $2,000,000 long-term gain. On April 15 she invests $1,200,000 in one QOF, and on August 20, day 173 (counting the sale date as day 1), she invests $500,000 in a second QOF. She has deferred $1,700,000; the remaining $300,000 is taxed for the year of the sale at normal rates. Each investment gets its own five-year inclusion date and 10-year exclusion date, so her first deferred amount is included in April of year 5 and the second in August.

Splitting also helps diversify among sponsors and projects. The cost is paperwork: every investment is listed separately on Form 8997 each year.⁸

Data center QOF capital tends to come from three sources: stock and business sales, real estate sales, and land sales to the project itself. The first two qualify easily. A landowner selling to the project's QOZB can defer the land gain only if the landowner is not related to the buyer under the 20% test, so a landowner who wants a large equity stake in the QOZB needs careful structuring. See Opportunity Zones for landowners.