OZ Advisor Guide
Change note: Completed the advisor workflow and source links.
OZ Advisor Guide: A Practical Opportunity Zone Workflow
Use this checklist to identify the relevant facts before recommending or documenting an Opportunity Zone position. It is an educational workflow, not tax, legal, valuation, or investment advice. The controlling law and elections should be confirmed for the client and transaction.
1. Establish the gain facts and taxpayer
Identify the taxpayer, gain character, recognition date, amount being deferred, and whether the taxpayer is a direct seller or an owner of a partnership or S corporation. For an owner, first determine whether the entity deferred the eligible gain. If it did not, the owner generally may use the entity's gain-recognition date, actual tax year-end, or actual unextended return due date as the start of the gain period. A Schedule K-1 receipt is not a start date. See Treas. Reg. section 1.1400Z2(a)-1(c)(8)(iii).
2. Calculate timing, then confirm relief
For a direct gain, the recognition date is day one. The raw calendar 180th day is 179 days later. Do not assume a weekend, holiday, disaster, or other relief rule applies. Confirm any relief and fund early. Use the deadline calculator and read the 180-day guide.
3. Verify the property and transition rules
Check the applicable designation, the acquisition date, original-issue and cash rules where a QOF purchases QOZB equity, and the business-property tests. Notice 2026-40 section 5.01 addresses post-2026 acquisition requirements and transition exceptions. A legacy tract's remaining designation is not by itself proof that new property or equity qualifies. Review Notice 2026-40 and the Treasury QOZ data page.
4. Test liquidity and investment fit
Separate the gain recognition date from estimated-tax and payment deadlines. Ask how the client will pay tax on a future inclusion without relying on a promised fund distribution or refinance. Underwrite the investment on its own merits and document the hold horizon, concentration, liquidity needs, and downside capacity.
5. Review structure and actual costs
Compare control, diversification, scope, administration capacity, fees, side agreements, related-party terms, and actual quoted professional costs. Same-class economics are negotiated facts, not an OZ-law requirement. A QOF investment by the client is distinct from a QOF's purchase of QOZB equity. Read QOF versus QOZB and fund evaluation.
6. Model basis, losses, and distributions
Track outside basis, debt allocations, depreciation, at-risk and passive-loss limits, and distribution or disguised-sale consequences. Losses are not automatically deductible or usable against wages or stock gains. See IRS Publication 541 and IRS Publication 925. Before relying on a discounted appraisal, calculate the hypothetical-sale tax result, including debt and basis.
7. Plan elections, reporting, and exits
Confirm the deferral election and investor reporting, obtain fund compliance information, and identify the planned exit election. A ten-year hold can support a QOF-interest-sale basis adjustment and, in eligible partnership or S corporation structures, an asset-sale exclusion election. The result depends on the applicable election, assets, and facts. Review the tax forms guide, K-1 guide, and reporting requirements.