OZ 1.0 Deadline

Last updated: March 2026

Key Takeaways

• On December 31, 2026, all capital gains deferred under OZ 1.0 are recognized for federal tax purposes. Tax is due April 2027.
• The QOF investment continues. The 10-year appreciation exclusion and FMV step-up at exit are not affected.
• Investors should calculate their tax bill now and identify the liquid assets they will use to pay it.

What Happens to OZ 1.0 Deferred Gains on December 31, 2026?

On December 31, 2026, all capital gains deferred under OZ 1.0 rules are recognized for federal tax purposes. Investors with existing OZ 1.0 positions will owe federal capital gains tax on their original deferred gain in April 2027 — regardless of whether they have received cash from their fund.

The Timeline

December 31, 2026: Deferred gain recognized. This is the statutory date — it cannot be extended.
April 15, 2027: Federal capital gains tax due (absent extension).
October 15, 2027: Extended filing deadline if applicable.
Ongoing: The QOF investment continues. The 10-year appreciation exclusion clock is still running. Nothing about the investment itself changes — only the tax treatment of the original deferred gain.

What Does Not Change After December 31, 2026

Your QOF investment is still valid
The 10-year appreciation exclusion still applies to post-investment appreciation
Depreciation recapture is still eliminated at the 10-year exit via FMV election
The fund does not need to wind down or liquidate

The December 31, 2026 date affects only the original deferred gain — not the future appreciation benefit.

Action Items for Current OZ 1.0 Investors

Calculate your tax bill now. Multiply your original contributed gain by your marginal federal capital gains rate (typically 20% or 23.8% with the Net Investment Income Tax) plus any applicable state taxes.
Set aside the cash. Identify the liquid assets you will use to pay this bill in April 2027.
Contact your sponsor. Ask whether the fund plans any distributions before year-end to help cover the liability.
Talk to your CPA now. Do not wait until tax season 2027.

Grandfathering — What You Keep

The OZ 1.0 deadline does not affect:

Zone designations for existing investments (grandfathered based on investment date)
10-year appreciation exclusion eligibility
FMV step-up election at exit
Depreciation treatment

The only thing that changes on December 31, 2026 is the deferral. Everything else that made the investment valuable continues.