The Opportunity Zone program is less commonly used by land investors than the 1031 exchange, but it offers a distinct advantage: it applies to capital gains from any asset, not just real estate. If you've sold land, stock, a business, or any other appreciated asset, you can use the proceeds to invest in a Qualified Opportunity Fund and defer — and potentially eliminate — a significant portion of that gain.
What Is an Opportunity Zone?
Opportunity Zones are census tracts designated by governors and certified by the U.S. Treasury under the Tax Cuts and Jobs Act of 2017. The program was designed to channel long-term private investment into lower-income communities by offering substantial federal tax incentives to investors who reinvest capital gains into these areas through a Qualified Opportunity Fund (QOF).
There are over 8,700 designated Opportunity Zones across the country, including tracts in Utah. Most of Summit and Wasatch County's prime land is not itself within a designated zone — but that doesn't prevent you from using the program. Proceeds from the sale of land anywhere can be reinvested into a QOF that operates in an Opportunity Zone.
The Three Tax Benefits
1. Gain Deferral
Capital gains reinvested into a QOF within 180 days of the sale are deferred until the earlier of the date you sell your QOF investment or December 31, 2026 — whichever comes first. The deferred gain is then recognized and taxed at the rates in effect at that time.
2. Partial Gain Reduction
Earlier versions of the program offered basis step-ups of 10% and 15% for 5-year and 7-year holds respectively. With the December 31, 2026 recognition date now fixed, only investments made before certain deadlines could still access these reductions. Consult your CPA on whether any basis reduction remains available given the current date.
3. Permanent Exclusion of QOF Appreciation
This is the program's most powerful benefit. If you hold your QOF investment for at least 10 years, any appreciation in the QOF itself — above what you invested — is permanently excluded from federal capital gains tax. You pay tax on the deferred original gain when it's recognized, but all the growth inside the QOF for the 10+ year hold period is tax-free.
What Is a Qualified Opportunity Fund?
A QOF is an investment vehicle — typically a partnership or corporation — that self-certifies with the IRS and holds at least 90% of its assets in Qualified Opportunity Zone Property (QOZP). QOFs can invest in real estate development within Opportunity Zones or in operating businesses located in those zones.
You can invest in an existing QOF managed by a real estate developer or fund manager, or — for larger amounts and more control — establish your own QOF. Setting up your own QOF involves additional compliance requirements and is typically only worth it at $2 million or more.
Requirements for Real Property QOF Investments
When a QOF invests in real property within an Opportunity Zone, it must substantially improve the property — meaning it must invest at least as much in improvements as the purchase price of any existing buildings within 30 months. Raw land does not require improvement (there's nothing to improve), making land development a common QOF strategy.
How This Applies to Wasatch Back Land Sellers
The most practical use case: you've held land in the Wasatch Back for 10+ years and it has appreciated significantly. You want to sell but are concerned about the capital gains tax bill. A 1031 exchange requires you to reinvest in another piece of real estate. A QOF gives you a different option — invest in a fund rather than operating another property directly, while deferring the gain and potentially eliminating all future appreciation from your tax bill.
The programs are not mutually exclusive. A 1031 exchange into a replacement property, followed by a conservation easement on that property, combined with a QOF investment for any boot received — these strategies can be layered with the help of a qualified tax advisor.