1031 Exchanges and DSTs: A Guide for Real Estate Investors
The 45-day and 180-day rules, identification options, how Delaware Statutory Trusts fit, and 2025 DST market data.
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A qualified opportunity fund (QOF) lets investors reinvest capital gains into designated low-income areas and receive tax benefits. Under current law, previously deferred gains must be recognized by December 31, 2026. The One Big Beautiful Bill Act made the program permanent for investments on or after January 1, 2027, with a rolling five-year deferral, a 10% basis step-up after five years (30% for qualified rural funds), and exclusion of gain on exit after 10 years. QOFs tracked by Novogradac raised $2.67 billion in 2025.
Key takeaways
- Gains deferred under the original program must be recognized by Dec 31, 2026.
- New rules apply to investments made on or after Jan 1, 2027: rolling 5-year deferral, 10% step-up (30% rural).
- Hold 10+ years to exclude gain on the QOF investment itself.
- Novogradac tracked $42.76B of cumulative QOF equity through 2025.
How opportunity zone investing works
- You realize a capital gain (for example, from selling stock or a business).
- You invest the gain amount into a qualified opportunity fund within the required window.
- The fund invests in qualifying property or businesses in designated opportunity zones.
- You receive deferral on the original gain and, if held long enough, exclusion of gain on the QOF investment.
What changed under the One Big Beautiful Bill Act
| Original program | Permanent program (investments from Jan 1, 2027) | |
|---|---|---|
| Deferral of original gain | Until Dec 31, 2026 at the latest | Rolling: 5 years after investment (or earlier sale) |
| Basis step-up | Earlier step-ups have largely expired | 10% after 5 years; 30% for qualified rural funds |
| 10-year exclusion | Yes | Yes, including gain that would be depreciation recapture |
| Zone maps | Current zones through Dec 31, 2028 | New designations starting July 1, 2026, every 10 years |
Source: Greenberg Traurig summary of the One Big Beautiful Bill Act. Confirm details with your tax advisor.
How much capital goes into QOFs?
$42.76BCumulative QOF equity tracked through 2025Novogradac
$2.67BRaised in 2025Novogradac
$2.47BRaised in 2024Novogradac
Annual QOF equity raised
Billions of dollars, Novogradac-tracked funds
Should you invest in 2026 or wait for 2027?
- Investing in 2026 means your deferral still ends Dec 31, 2026 under the original rules, so the deferral period is short.
- Investing from 2027 gives a full five-year deferral and the new step-up, but zone maps will change.
- Either way, the 10-year exclusion is often the largest benefit, so evaluate the underlying investment first.
- Coordinate timing with your CPA; this is a tax decision as much as an investment decision.
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Frequently asked questions
Under the original program, deferred gains must be recognized no later than December 31, 2026.
For investments on or after January 1, 2027, the program becomes permanent with a rolling five-year deferral, a 10% basis step-up after five years (30% for qualified rural opportunity funds), and the 10-year exclusion of gain on exit.
Novogradac tracked $42.76 billion of cumulative QOF equity through December 31, 2025, including $2.67 billion raised in 2025.
Yes, like any private real estate or business investment. Tax benefits don't offset a weak investment. Vet the sponsor and the projects.
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Sources
This guide is educational and is not investment, tax or legal advice, or an offer to buy or sell any security.
