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you must take the gains from the sale of real estate and invest those gains in another piece of real property. With opportunity zones, however, you can put capital gains from any asset class into the fund and derive the associated tax advantages. 3. QOFs must invest more than 90 percent of their assets in proper- ties located within an opportunity zone. Those investments must result in “significant improve- ment” as defined by the Treasury and the IRS. Failure to keep the appropriate volume of funds from a QOF invested in a QOZ or failure to meet the “significant improve- ment” guidelines could result in decertification of a QOF and, sub- sequently, a loss for investors of the benefits associated with their

opportunity zone investments.

a QOF or do a 1031 exchange.

While these similarities may help investors feel as if they can really “go either way” when it comes to investing in one vehicle or the other, there are some big differences be- tween the two as well. For example, 1031 exchanges can conceivably delay payments on capital gains indefinitely, while QOFs defer only until the fund closes, the property in the fund is sold, or December 31, 2026. That date is a hard deadline for capital gains deferral in QOFs.

OPPORTUNITY ZONES VS. 1031 EXCHANGES

There are four main aspects of 1031 exchanges and QOF invest- ments that are quite similar: 1. They enable investors to defer capital gains on the sale of an investment. 2. They encourage investors to reinvest gains rather than liquidate them by offering tax incentives and advantages.

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Carole VanSickle Ellis is the edi- tor-in-chief of Self-Directed Investor magazine and the president of SDI Academy. Learn more at sdisociety. com and, to receive your copy of SDI’s Opportunity Zone Primer, email Carole at Carole@selfdirected.org.