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When Opportunity Knocks, Answer the Door. The Powerful New Capital Gain Tax Deferral & Elimination Strategy


Tax reform last year created a once-in-a-lifetime chance to defer and eliminate capital gain taxes. With the help of state Governors around the country, certain areas were designated as Opportunity Zones (OZ), and reinvestment of ANY capital gains into these specified Opportunity Zones allows taxpayers, pardon the pun, an opportunity to take advantage of three incredible new tax provisions:

1 – Pay no tax on the “original” capital gain reinvested in the Opportunity Zone until 2026.

2 – When tax on the “original” gain comes due, potential permanent 10% or 15% tax elimination.

3 – If the Opportunity Zone investment is held for 10 years, pay no federal tax ever on the appreciation.

There are a number of technical requirements that need to be met in order to qualify for the tax benefits, but presuming you meet all those, here’s how it would work in practice.

If you sold highly appreciated stock which resulted in a capital gain of $100,000 and reinvested that $100,000 gain into a qualifying OZ Fund, the gain is not currently taxable. In 2026, the tax on the original gain comes due.

If you held the OZ Fund investment for 5 or 7 years before the end of 2026, you would be eligible for a permanent 10% or 15% reduction in the amount of the gain that is taxable. So if you held it for 5 years, only $90,000 of the original gain is subject to tax, or $85,000 if you’ve held it 7 years before the end of 2026.

Ten years after you originally invested in the OZ Fund, the $100,000 is now worth $500,000. You can sell your investment and PAY NO TAX on the $400,000 appreciation.

And unlike a 1031 Like-Kind Exchange, only the taxable gain needs to be reinvested, not the full proceeds. Also, unlike 1031 exchanges, you can hold your sales proceeds personally but you must reinvest the gain portion within 180 days.

Sound too good to be true? It’s not, we promise. But, as with all things tax related, the devil is in the details. If you want more information or have any questions, please contact your Berntson Porter tax advisor. If you don’t have a contact at Berntson Porter, please connect with Brendan McAuliffe at bmcauliffe@bpcpa.com.