Opportunity Zone Calculator: QOZ vs. Paying Capital Gains Now
Enter your capital gain and tax situation to see the dollar difference between investing in a Qualified Opportunity Fund and simply paying the tax today. Models OZ 1.0 (2026 — mandatory Dec 31, 2026 gain recognition) and OZ 2.0 (2027+ rolling 5-year deferral under OBBBA) at a 10-year horizon.
How the QOZ calculation works
The tax stack on a capital gain
When you sell an investment property (or any capital asset) at a gain, federal tax comes in layers:
- Unrecaptured §1250 gain — depreciation claimed on real property is recaptured at a maximum 25% federal rate (IRC §1(h)(1)(D)). If your LTCG bracket is lower than 20%, the recapture is taxed at that lower rate instead.
- Long-term capital gain — the remaining appreciation, taxed at 0%, 15%, or 20% depending on total income. Your other income fills up the lower brackets first.
- Net Investment Income Tax (NIIT) — 3.8% surtax under IRC §1411 on net investment income above $200K (single) / $250K (MFJ). These thresholds are not indexed for inflation.
Combined, a high-income married investor selling rental property can face 28.8% on the recapture portion (25% + 3.8% NIIT) and 23.8% on the appreciation (20% LTCG + 3.8% NIIT).
Scenario A — Pay Tax Now
You pay all federal tax in the year of the sale. Your after-tax proceeds (gain minus the tax bill) are reinvested and grow at the same rate as the QOF. At year 10, you sell the reinvested amount and pay capital gains on the appreciation. This is the realistic path with no deferral strategy.
Scenario B — OZ 1.0 (2026 investment)
Investing your eligible gain in a Qualified Opportunity Fund defers the original tax. For a 2026 investor, the deferred gain must be recognized on December 31, 2026 — effectively the same tax year as the sale. The 5-year (10% exclusion) and 7-year (15% exclusion) step-ups required investments by December 31, 2021 and 2019 respectively — no longer available to new investors.
What OZ 1.0 still delivers in 2026: the full pre-tax gain amount compounds inside the QOF for 10 years, and all appreciation above that amount is permanently excluded from federal tax when you sell after 10 years.2 The same tax is still owed, but paid from external funds — leaving more capital compounding inside the QOF.
Scenarios C & D — OZ 2.0 (2027+ investments under OBBBA)
The One Big Beautiful Bill Act (July 2025) redesigned the program for QOF investments made after December 31, 2026:1
- Rolling 5-year deferral — the recognized gain date is the 5th anniversary of your QOF investment, not a fixed calendar date. A 2028 investment is recognized in 2033.
- 10% basis step-up (standard zones) — at year 5, 10% of the deferred gain is permanently excluded. You owe tax on only 90% of the original amount.
- 30% basis step-up (rural opportunity zones) — rural QOZ investments get a substantially larger exclusion at year 5.
- 10-year appreciation exclusion — same as OZ 1.0. All QOF appreciation above the invested amount is permanently excluded after a 10-year hold.
• OZ 1.0: withdrawing T from the QOF at year 0 to cover the tax leaves you with exactly the same capital as "Pay Tax Now" — the QOZ advantage disappears entirely.
• OZ 2.0: withdrawing Tstd at year 5 is better, because the QOF has already grown for 5 years before you reduce it. The year-5 deferral still has real value even in this case.
When QOZ makes more sense than a 1031
A 1031 exchange is almost always the better vehicle for investors staying in real estate — it defers 100% of the gain (including §1250 recapture) indefinitely. QOZ makes more sense when:
- You're exiting real estate and don't want to reinvest in like-kind property
- Your gains include non-real estate assets (stocks, business sales) that can't go into a 1031
- You're targeting rural real estate in 2027+ and the 30% step-up materially changes the math
- You want to diversify into commercial real estate passively through an established QOF rather than direct ownership
→ See the full OZ guide for a side-by-side QOZ vs. 1031 comparison table, the 180-day investment window mechanics, and OZ fund due diligence checklist.
Related tools and guides
- Qualified Opportunity Zones Guide — full OZ 1.0 and OZ 2.0 mechanics, Dec 31 2026 deadline, QOZ vs 1031 comparison, and fund due diligence
- 1031 Exchange Tax-Deferral Calculator — model the full federal tax stack on a property sale and the value of rolling equity forward
- Depreciation Recapture Calculator — compute your §1245 + §1250 + LTCG + NIIT stack before modeling any deferral strategy
- 7 Ways to Avoid Capital Gains on Rental Property — QOZ, 1031, installment sale, DST, step-up at death, and PAL offset — decision table
- 1031 Exchange Complete Guide — 45/180-day rules, boot, DSTs, and when paying the tax beats another exchange
Model your QOZ scenario with a specialist
Whether OZ 1.0 or OZ 2.0 makes sense depends on when your gain event occurs, the character of the gain (§1231 vs §1250 vs pure LTCG), what QOFs are available in your target geography, and whether any passive loss carryforwards or 1031 options apply. The calculator gives you the framework; a specialist builds the actual model against your specific numbers. Free match, no obligation.
Sources
- Plante Moran — The OBBB and Opportunity Zones 2.0 (2025). OZ 2.0 rolling 5-year deferral replacing fixed Dec 31, 2026 deadline; 10% standard and 30% rural basis step-ups; 10-year appreciation exclusion continuation; program permanence under OBBBA (July 2025). Verified April 2026.
- IRS — Opportunity Zones Frequently Asked Questions. December 31, 2026 mandatory gain recognition for OZ 1.0; 10-year appreciation exclusion (basis stepped up to FMV at disposal); 180-day investment window. Verified April 2026.
- IRS — Invest in a Qualified Opportunity Fund. IRC § 1400Z-2 three-tier benefit structure: deferral, basis step-up, and 10-year appreciation exclusion. Eligible gains include capital gains and qualified § 1231 gains. Verified April 2026.
- IRC § 1400Z-2 — Special Rules for Capital Gains Invested in Opportunity Zones. Full statutory text including the 10-year fair-market-value basis step-up election on QOF disposition (§ 1400Z-2(c)). Verified via LII April 2026.
OZ 2.0 rules (OBBBA, July 2025) apply to QOF investments after December 31, 2026. OZ 1.0 (original TCJA program) governs investments on or before that date, including the mandatory Dec 31, 2026 gain recognition. Rural QOZ step-up rates and redesignated zone maps are subject to Treasury certification; verify zone eligibility before investing. Tax rates reflect 2026 federal law. This calculator is for illustrative purposes only and does not constitute tax or investment advice. Values verified May 2026.