Compare two powerful tax-deferral strategies side-by-side. Understand key differences in eligibility, timelines, tax benefits, and decide which strategy is right for your investment.
A tax-deferral strategy that allows real estate investors to defer capital gains taxes by exchanging one investment property for another like-kind property.
A tax incentive program that allows investors to defer and potentially eliminate capital gains taxes by investing in designated economically distressed communities.
Explore detailed comparisons across eligibility, timelines, tax benefits, flexibility, and complexity. Click any category to view more information.
Tap to expand each category
Real estate capital gains only
Any capital gain from any source
Must purchase like-kind replacement property
Must invest into Qualified Opportunity Fund (QOF)
45-day identification, 180-day closing
180 days to invest from gain recognition
100% capital gains deferral
Deferral + partial basis increase + potential elimination
No geographic restrictions
Must invest in designated Opportunity Zones only
Like-kind real estate only
Any business or real estate within zone
No minimum holding period for tax benefits
Tiered benefits at 5, 7, and 10 years
Carryover basis (no step-up during life)
Basis increases at milestones, reset at 10 years
Moderate complexity and cost
Higher complexity and ongoing compliance
Note: Click any category row to view detailed information, advantages, and limitations for each strategy.
Both strategies offer powerful tax benefits, but the right choice depends on your specific situation. Use these scenarios to help identify which approach best fits your needs.
You're selling real estate and want to acquire more real estate
1031 is specifically designed for real estate-to-real estate exchanges. If you're in the real estate business and want to continue owning property, this is the natural choice.
You want maximum flexibility in property location
Unlike OZs which restrict you to designated zones, 1031 allows you to acquire property anywhere in the United States, giving you complete geographic freedom.
You prefer simpler transaction mechanics
While both strategies require professional guidance, 1031 exchanges are more straightforward: sell one property, buy another through a QI. No fund formation or ongoing compliance required.
You need to defer 100% of capital gains immediately
1031 defers all gains and depreciation recapture completely. OZ only defers the original gain until 2026 and then you must pay tax on it.
You have specific replacement properties identified
If you already know what property you want to acquire, the 1031 identification rules work in your favor.
You want to continue deferring indefinitely through serial exchanges
You can do sequential 1031 exchanges throughout your lifetime, continually deferring tax and potentially passing property to heirs with a stepped-up basis.
Your investment timeline is shorter than 10 years
OZ benefits require a 10-year hold to maximize tax elimination. If you're planning a shorter hold, 1031's immediate deferral is more beneficial.
Best for: Real estate investors who want to defer taxes while maintaining flexibility in property location and prefer a well-established exchange process.
View Full 1031 Details →You have capital gains from non-real estate sources
OZ is the only tax-deferral strategy available for stock sales, business sales, cryptocurrency, or other non-real estate capital gains.
You're willing to hold for 10+ years to maximize tax benefits
The primary OZ benefit is complete tax elimination on appreciation after 10 years. If you can commit to this timeline, the benefit is powerful.
You want potential tax-free appreciation (vs. just deferral)
Unlike 1031 which only defers tax, OZ can eliminate tax entirely on new appreciation generated within the Opportunity Zone investment.
You're interested in community development and social impact
Opportunity Zones are designated to spur economic development in underserved communities. If social impact investing appeals to you, OZ combines tax benefits with community benefit.
You prefer fund-based passive investment over direct property management
QOFs provide professional management and can offer diversification across multiple properties or businesses, reducing individual property management burden.
You can meet the 2026 deadline for deferred gain recognition
While the 5- and 7-year step-up benefits have expired, you still benefit from deferring the original gain until December 31, 2026, giving you several more years before paying tax.
You seek portfolio diversification within designated zones
QOFs can invest in multiple properties and businesses within Opportunity Zones, providing diversification that's harder to achieve with direct 1031 property ownership.
Best for: Investors with diverse capital gains sources who can commit to a 10+ year hold and want the potential for completely tax-free appreciation.
View Full OZ Details →Still unsure? Many investors benefit from using both strategies at different times or even combining them. Learn more about combination strategies below.
Sophisticated investors can leverage both strategies sequentially to maximize tax benefits. By using a 1031 exchange to acquire property within a Qualified Opportunity Zone, you can achieve immediate tax deferral through the 1031 while positioning for long-term Opportunity Zone benefits on future appreciation.
An investor exchanges an apartment building in a mature market for an apartment building in an Opportunity Zone. After five years, the OZ property has appreciated significantly. The investor can then sell and invest the gain into a QOF to capture tax-free appreciation on the new gain, while the original 1031-deferred gain remains deferred.
A commercial property owner uses a 1031 exchange to acquire a development site in an Opportunity Zone, constructs new improvements, and positions for long-term appreciation that could qualify for tax-free treatment under OZ rules.
Key deadlines affecting Opportunity Zone benefits - plan your investment timeline accordingly
2019
7yr step-up
deadline
(expired)
2021
5yr step-up
deadline
(expired)
Dec 31, 2026
Deferred gain
must be
recognized
2031+
10yr hold
tax-free
appreciation
Ongoing
No sunset on
appreciation
exclusion
2019 & 2021
Step-up deadlines (expired)
December 31, 2026
Deferred gain must be recognized
2031+
10-year hold for tax-free appreciation
Permanent
No sunset on appreciation exclusion
Deadline:
December 31, 2026
Description:
All capital gains deferred through Opportunity Zone investments must be recognized and taxed by this date
Impact:
Limits the deferral period to approximately 6-7 years for current investments, reducing the time value of tax deferral
Action Required:
Plan for tax payment or estimated tax in 2026, ensure sufficient liquidity outside OZ investment
Deadline:
Investment must have been made by December 31, 2021 (expired)
Description:
Required 5-year hold by December 31, 2026 to receive 10% basis increase on deferred gain
Impact:
No longer available for new OZ investments made after 2021
Action Required:
None for new investors; existing investors should maintain hold to preserve benefit
Deadline:
Investment must have been made by December 31, 2019 (expired)
Description:
Required 7-year hold to receive additional 5% basis increase (total 15%)
Impact:
No longer available for new OZ investments made after 2019
Action Required:
None for new investors; existing investors should maintain hold to preserve benefit
Deadline:
No sunset (permanent benefit)
Description:
100% exclusion of appreciation on QOF investment if held 10+ years
Impact:
Primary remaining benefit for new OZ investors; provides complete tax elimination on new appreciation
Action Required:
Maintain investment for full 10 years from investment date to qualify
Planning Note: The December 31, 2026 deadline means deferred gains will need to be recognized and taxed. The primary remaining benefit for new investors is the potential for 100% tax-free appreciation after a 10-year hold, which has no sunset date.
1031 exchanges offer more geographic flexibility but require like-kind real estate. Opportunity Zones accept any capital gain source but restrict investments to designated areas.
1031 exchanges have strict 45-day identification and 180-day completion deadlines. Opportunity Zones offer a simpler 180-day investment timeline from the gain recognition date.
1031 exchanges defer 100% of taxes indefinitely. Opportunity Zones defer taxes until 2026 and can eliminate gains on new investments held 10+ years.
The best choice depends on your gain source, investment timeline, geographic preferences, and whether you prioritize tax deferral or potential elimination.
Connect with tax advisors and investment professionals who can help you choose the right strategy