Why 2025–2026 Opportunity Zone Reinvestments Are More Powerful Than Most Advisors Realize

Many CPAs, CFPs, investment advisors, and tax attorneys still view Opportunity Zone (OZ) investing through an outdated and incomplete lens. Their focus remains narrowly fixed on one feature: the temporary deferral of capital gains until December 31, 2026. Because that deferral window is now short, some conclude that OZ 1.0 investments made in 2025 or 2026 are no longer compelling.

That conclusion is not just incomplete—it misses the most valuable benefit of the entire program. The true power of Opportunity Zones has never been about deferral alone.

The real economic engine is the permanent exclusion of federal—and in most cases state—capital gains tax on appreciation when a Qualified Opportunity Fund (QOF) investment is held for at least ten years. This means that while the original deferred gain will be recognized in 2026, all future growth in the investment can be sold completely tax-free in year ten.

For long-term, growth-oriented investors, that is an extraordinary advantage, particularly in a real estate environment where patient capital can compound dramatically over a decade.

But there is an additional layer of opportunity that is often overlooked, even by sophisticated professionals: how the deferred gain is measured in 2026.

Under Internal Revenue Code Section 1400Z-2, the amount of capital gain that becomes taxable in 2026 is not automatically the original deferred gain. Instead, it is the lesser of:

1. The original deferred gain, or

2. The fair market value (FMV) of the investor’s QOF interest on December 31, 2026.

This distinction is critical—and it creates a powerful planning opportunity for investors who enter projects that are still in development or early stabilization.

In real estate and operating business valuations, assets that are under construction, in lease-up, or not yet fully stabilized are typically appraised at a discount to their ultimate value. Qualified valuation professionals commonly apply combined discounts for Lack of Control and Lack of Marketability ranging from 25% to 45% for projects in these stages.

What does that mean in practical terms?

If an investor places capital gains into a newly launched Opportunity Zone project in 2025 or 2026, and that project is still in development or early operations by the end of 2026, the fair market value of the QOF interest may be significantly lower than the original invested gain. Because the tax law requires recognition of the lower of the two numbers, the investor may permanently reduce the amount of gain that is ever taxed.

This is not a deferral benefit. It is a basis reset that can create a lasting tax savings.

Then, the most powerful feature of all takes over: after a ten-year hold, the investor can elect to step the basis in the QOF interest up to fair market value upon sale. The result is that all appreciation above that discounted 2026 valuation is completely exempt from capital gains tax.

In other words, when structured properly:

• A portion of the original gain may never be taxed due to discounted 2026 valuation.

• All growth over the next ten years can be realized tax-free.

• The investor benefits from long-term compounding in real assets without the drag of future capital gains taxes.

This is why the current moment—before stabilization, before permanent financing, before full market pricing is achieved—can be an especially attractive entry point for Opportunity Zone 1.0 investments. Early-stage projects offer not only higher potential returns from value creation, but also a unique tax-efficiency that disappears once assets are fully stabilized and trading at peak valuations.

For investors with significant gains in 2025 or 2026, the Opportunity Zone program is far from “too late.” In fact, when understood correctly, it may be entering its most strategically advantageous phase: one where development-stage valuations, statutory tax rules, and long-term growth horizons intersect to create both impact and exceptional after-tax outcomes.

The window is not closing. It is becoming more nuanced—and for informed investors, more powerful than ever.