How to Invest in an Opportunity Zone, Step by Step

Short answer: to invest in an Opportunity Zone, you invest an eligible capital gain, in cash, into a qualified opportunity fund (QOF) within 180 days of the gain. The fund, not you, owns the property or business in the zone. You then elect the deferral on your tax return and file IRS Form 8997 every year you hold the investment (IRS, Invest in a qualified opportunity fund).

That’s the whole structure. The steps below put it in order, with links to the free tools on this site for each one.

Step 1. Start with an eligible capital gain

The Opportunity Zone tax benefits apply only to money that represents an eligible gain, generally a capital gain or a net Section 1231 gain, from a sale to an unrelated person (IRS Opportunity Zones FAQ). You can invest only the gain, not the whole sale proceeds, to get the benefit. Money that isn’t eligible gain can go into the same fund, but that part gets no Opportunity Zone tax treatment.

Not sure the numbers work? The Opportunity Zone tax calculator estimates the deferral and exclusion for your gain.

Step 2. Note your 180-day deadline

You generally have 180 days from the day the gain is realized to invest it. Some gains start the clock later, such as gains passed through from a partnership or S corporation, REIT capital gain dividends and Section 1231 gains (IRS FAQ). Use the 180-day rule calculator to find your exact date.

Step 3. Decide: invest in a fund, or set up your own

Every Opportunity Zone investment goes through a QOF. You have two practical routes:

A QOF must hold at least 90% of its assets in qualified opportunity zone property, tested twice a year, and it self-certifies on Form 8996. If a fund owns an operating business, that business has to meet the qualified opportunity zone business (QOZB) tests. Buying used real estate also triggers the substantial improvement rule.

Simply buying a building in a zone in your own name doesn’t qualify. The money has to flow through a QOF.

Step 4. Find and research funds (or a location)

• Funds: browse the Opportunity Zone fund directory, which lists 1,068 qualified opportunity funds with their sponsor, status, states and SEC Form D filings, and line up two or three in the fund comparison tool. For a checklist, read how to compare Opportunity Zone funds.
• Locations: to see whether a property is in an Opportunity Zone, search the address on the Opportunity Zone map. For a tract that may become a zone in 2027, try the OZ 2.0 Likelihood Checker.

Most third-party QOFs are private offerings sold to accredited investors under Regulation D. Read the offering documents and check the fund’s Form D filings on SEC EDGAR.

Step 5. Invest the gain in cash for equity

Within the 180 days, wire cash equal to the gain (or the part you want to defer) to the QOF in exchange for an equity interest, such as partnership units or stock. A loan to the fund doesn’t qualify.

Step 6. Elect the deferral and file Form 8997

On your federal return for the year of the gain, report the sale and elect to defer the invested gain on Form 8949, and attach Form 8997. You file Form 8997 every year until you sell the QOF interest (IRS, About Form 8997). Our Form 8997 guide walks through the parts.

Step 7. Hold: five years and ten years

• Deferral. For investments made on or after January 1, 2027, the deferred gain is recognized on the earlier of selling the investment or five years after you invested. Holding five years increases basis by 10% of the deferred gain, or 30% for a qualified rural opportunity fund. For investments made on or before December 31, 2026, the deferred gain is recognized on December 31, 2026 (P.L. 119-21 §70421).
• The 10-year rule. Hold at least 10 years and you can elect to step up your basis to fair market value when you sell, so the appreciation on the QOF investment isn’t taxed. Details: the Opportunity Zone 10-year rule. Model it with the basis step-up and 10-year exclusion calculator.

Timing in late 2026

The rules change for investments made on or after January 1, 2027. A gain realized in late 2026 can sometimes be invested in early 2027 within its 180 days and fall under the new rules. See what changes in 2027 and plan dates with the 2027 deadline planner.

Related reading

• How to invest in a qualified opportunity fund: the detailed nine-step version, including special 180-day start dates
• Opportunity Zone tax benefits
• Opportunity Zone real estate investing
• Opportunity Zone mistakes to avoid

Sources: IRS, Invest in a qualified opportunity fund; IRS, Opportunity Zones FAQ; IRS, About Form 8996; IRS, About Form 8997; 26 U.S.C. §1400Z-2; P.L. 119-21 §70421.

Not tax advice.