Adjust any field. Results recalculate live. All figures are federal-only and pre-state; see state-conformity note below.
Year-5 recognition applies to OZ 2.0 investments (QOF contributions on or after Jan 1, 2027). OZ 1.0 investments (on or before Dec 31, 2026) recognize the deferred gain at Dec 31, 2026; this calculator models OZ 2.0.
What the calculator models
Three federal tax mechanics drive the result:
- Gain deferral. When you reinvest a capital gain into a Qualified Opportunity Fund within 180 days of the recognition event, federal tax on that gain is deferred. Under OZ 2.0 (made permanent by OBBBA), for investments made on or after Jan 1, 2027, the deferred gain is recognized on the earlier of (i) disposition of the QOF interest or (ii) five years after the investment date — a rolling 5-year deferral that replaces the original framework's fixed Dec 31, 2026 recognition date.
- Basis step-up on the deferred gain. Under the original program a 10% step-up applied at 5 years and a 15% step-up at 7 years. Under OZ 2.0, a 10% step-up applies at 5 years for standard QOF investments; investments in a qualified rural opportunity fund (QROF) receive an enhanced 30% step-up at 5 years — both percentages are fixed directly in P.L. 119-21 amending IRC §1400Z-2(b)(2)(B)(iii). Treasury guidance (IRS Notice 2025-50) addresses the rural area definition and modified substantial-improvement test, not these rates. Enter the step-up your counsel confirms applies to your deal.
- 10-year FMV exclusion on QOF appreciation. Hold the QOF interest at least ten years and you can elect to step the basis of your QOF interest to fair market value at exit, eliminating federal tax on the appreciation inside the OZ investment. The original deferred gain is still recognized — these are two separate benefits applying to two separate amounts.
The same exit multiple is applied to both scenarios so the comparison isolates the tax effect, not differential underwriting. In the no-OZ scenario, the after-tax remainder is assumed to be invested at the same multiple as the QOF. If you expect a different return profile outside the OZ, run two passes with adjusted multiples. For holds longer than five years under OZ 2.0, the deferred-gain tax is paid at year 5, so the net at exit is reduced by the tax bill plus the lost compounding on those dollars from year 5 forward (implied by the same exit multiple).
This calculator is federal-only. Not all states conform to federal OZ treatment. California does not provide a state capital-gains exclusion and so OZ investors pay California tax on the gain in the year of realization, materially eroding the federal benefit. Several other states have partial conformity or specific decoupling rules. Confirm your state's posture before relying on the result.
This is a feasibility-stage screening tool — not tax advice. The OZ 2.0 basis-step-up percentage, Rural OZ enhanced benefits, and any state-level treatment must be confirmed against the current statute and Treasury regulations with qualified tax counsel before being relied upon in deal structuring or investor materials.
Sources & statutory framework
- Internal Revenue Code §1400Z-1 and §1400Z-2 (Opportunity Zones — original framework, 2017 Tax Cuts and Jobs Act).
- P.L. 119-21 — One Big Beautiful Bill Act (OBBBA), signed July 4, 2025. Permanently extended the OZ program and established the OZ 2.0 framework, including a new Rural Opportunity Zone category.
- Treasury Regulations under §1400Z-2 — final regulations originally issued in 2019; updated implementing regulations for OZ 2.0 are being finalized.
- For the full practitioner guide, see our Opportunity Zones program page.