Opportunity Zones in 2026: The Old Program and the New One
Why 2026 is the year deferred gains from the first opportunity zone program come due, and how the permanent program that starts in 2027 differs.
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
The original opportunity zone program let investors defer capital gains by investing them in a qualified opportunity fund, with the deferred gain recognized on December 31, 2026, and appreciation on the fund excluded if held ten years. The 2025 law made the program permanent, with new zones from 2027 and a rolling five-year deferral for new investments.
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What happens in 2026 for existing investors?
| Item | Rule |
|---|---|
| Deferred gain | Recognized on the 2026 return (the earlier of sale of the fund interest or December 31, 2026) |
| Basis step-ups | Investments made by the end of 2021 already received the 10 percent basis increase (five-year hold), and those made by the end of 2019 the additional 5 percent (seven-year hold); later investments received none |
| Tax due | On the deferred gain (less any basis step-up, and capped at the fund interest's fair market value if lower), at 2026 rates, with no cash from the fund unless it distributes |
| Fund interest | Keep holding; after ten years, gain on the fund investment itself is excluded when sold |
| Reporting | Form 8997 annually; Form 8949 for the recognition |
Investors should plan for the 2026 tax bill now — estimated payments, or liquidity from the fund.
How does the new program work?
- New zones nominated by governors in a window that opened July 1, 2026 and certified by Treasury take effect January 1, 2027, through December 31, 2036, with stricter low-income criteria (median family income at or below 70 percent of the area median) and a rural emphasis; redesignations occur every ten years. Existing zones remain designated through December 31, 2028.
- Deferral of gain invested in a fund after December 31, 2026 runs until the earlier of a sale of the fund interest or five years from the investment, not to a fixed date.
- Basis step-up of 10 percent of the deferred gain after five years, 30 percent for qualified rural funds.
- Ten-year exclusion of appreciation continues, with a cap for holdings beyond 30 years (basis set at fair value at the 30-year mark).
- Rural incentives include a substantial-improvement threshold of 50 percent of basis, instead of 100 percent, for existing property in zones that are entirely rural.
- Reporting requirements for funds (which certify on Form 8996) expand, with penalties for non-filing of $500 a day, capped at $10,000 ($50,000 for funds with more than $10 million of assets).
Who should consider it?
Business owners with a large capital gain — from a business sale, real estate, or stock — who can invest the gain within 180 days and hold for ten years, and who find an investment they would make on its merits. The tax benefit does not rescue a bad real estate deal.
What are the traps?
Missing the 180-day investment window; funds that fail the 90 percent asset test; investing cash that is not gain (only gain qualifies for the benefits); and, for the original program, forgetting that the deferred gain is due in 2026 regardless of whether the fund has performed.
Frequently asked questions
Can I invest a 2026 gain in a fund under the old zones?
Yes, but with little deferral: a 2026 investment falls under the original rules, so the deferred gain is still included on December 31, 2026, with no basis step-up, although the ten-year exclusion remains available. Gain realized in 2026 but invested on or after January 1, 2027, within the 180-day window, falls under the new five-year rules. Confirm the fund's status before investing.
Is the deferred gain subject to the net investment income tax when recognized?
Generally yes. The included gain keeps the attributes it would have had without deferral and is taxed under the rules for the year of inclusion, so gain that would have been net investment income is generally subject to the 3.8 percent tax then.
Can I defer gain on the sale of my business?
Yes, the capital gain portion, if invested in a qualified fund within 180 days; ordinary income portions do not qualify.
Does Florida have opportunity zones?
Yes, designated tracts across the state, with new designations expected for 2027.
Official sources
The IRS explains: “Taxpayers holding a qualifying investment (or portion thereof) through December 31, 2026, are required to include in income in the taxable year that includes that date the amount of remaining deferred gain from the qualifying investment as calculated under prior § 1400Z-2(b)(2) and § 1.1400Z2(b)-1(e)(3) (deemed included gain).” — Internal Revenue Service, Internal Revenue Bulletin: 2026-28, https://www.irs.gov/irb/2026-28_IRB
The IRS explains: “Use Form 8997 to inform the IRS of the QOF investments and deferred gains held at the beginning and end of the current tax year, as well as any capital gains deferred by investing in a QOF and QOF investments disposed of during the current tax year.” — Internal Revenue Service, About Form 8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments, https://www.irs.gov/forms-pubs/about-form-8997
Next step
Fairlight Accounting handles U.S. domestic, cross-border (U.S.–Canada), and international tax returns, plus bookkeeping, payroll, and CFO advisory. Our U.S. Tax Desk builds the 2026 recognition into estimates for existing investors and tests new fund investments against the rules. See pricing or book a free fit call.
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