SAVE A FAILED 1031 Exchange - Defer Taxes On Any Capital Gain
Qualified Opportunity Zone (OZ) Funds
Defer real estate and non-real estate capital gain taxes. Invest your taxable gains alongside leading institutions in personalized, diversified real estate portfolios designed for income generation, tax deferral, and value appreciation.
1031 Alternative
Generates Income
Value Appreciation
Cash-Out Refi
Diversification
Tax Benefits
Topics Covered
Why explore Opportunity Zone Funds?
While many real estate investors rely on 1031 exchanges, they often overlook Opportunity Zone (OZ) Funds. These funds offer powerful tax advantages specifically designed to solve the unique challenges that direct property ownership and 1031 exchanges present.
Realized Capital Gains
If an investor sells stocks, bonds, real estate, a business, artwork, jewelry, or any other capital asset and incurs a taxable capital gain. Use Opportunity Zone Funds to defer and potentially eliminate the tax liability on that gain.
Failed 1031 Exchange
If an investor sells property intending a 1031 exchange but cannot identify or acquire suitable replacement property within the strict deadlines, investing the capital gains into a QOF within 180 days of the sale can still provide tax deferral, avoiding immediate tax liability.
High-Leverage 1031
When selling a property with a very high loan-to-value, finding replacement financing to fully defer taxes in a 1031 exchange can be difficult. Using a QOF offers a way to defer tax on the gain without the immediate pressure of matching the debt on the replacement property.
Key Features of Opportunity Zone Funds From Baker 1031 Investments
Unleash your real estate portfolio's potential by exploring opportunities to diversify, improve the quality of your holdings, and stop managing properties yourself—all without sacrificing potential income and value appreciation. Work with us to invest alongside leading institutions into personalized, diversified portfolios of properties designed for income generation and overall value appreciation.
Institutional-Quality Properties
Most real estate investors can’t afford to build a diversified portfolio of multimillion-dollar properties. Our strategies allow investors to acquire partial ownership in properties that otherwise would be out of reach.
Lower Minimum Investments
Our investment offerings can accommodate much lower minimum investments. Minimums often are $100,000 or less.
Assumable Financing
In some of our offerings, you can acquire debt to meet 1031 exchange requirements without having to qualify for or take responsibility for the loan. The debt won't appear on your credit report or affect your credit score, yet you can still deduct your share of the interest payments. It's debt without the liability.
What is an Opportunity Zone (OZ) Fund?
A qualified opportunity fund (QOF) is an investment vehicle typically organized as a corporation or a partnership which must hold at least 90 percent of its assets in QOZ businesses and assets. From the date of sale of an appreciated asset that triggers taxable gains, an investor has 180 days to invest up to the amount of those gains in a QOF in order to reap the potential tax advantages of the Opportunity Zone Program.
Investors with taxable gains from the sale or exchange of virtually any type of property, including the following, may potentially defer gains by reinvesting the proceeds in a QOF within 180 days of the sale or exchange.
Potential Tax Benefits of Qualified Opportunity Funds
An individual who invests in a qualified opportunity zone (QOZ) is eligible for favorable tax treatment in the form of both deferral and forgiveness.
Defer taxable income from gain until 12/31/2026
10+ year hold on QOF (qualified opportunity fund) allows for complete tax elimination
Unlike 1031 exchanges, in a QOF transaction, investors with taxable gains from the sale or exchange of virtually any type of property, may potentially defer gains by reinvesting the proceeds in a QOF within 180 days of the sale or exchange.
Stocks
Mutual Funds
Bonds
Real Estate
Business
Investments
Jewelry
Art
Cars
How to invest in an Opportunity Zone Fund
Defined under the 2017 Tax Cuts and Jobs Act, QOZs are census tracts (permanent statistical subdivisions of a county) composed of economically disadvantaged communities, including a small percentage of tracts contiguous to low-income census tracts. With more than 8,700 QOZs identified, this source of untapped capital to revitalize underserved communities has attracted significant attention.
A QOF is an investment vehicle typically organized as a corporation or a partnership which must hold at least 90 percent of its assets in QOZ businesses and assets. From the date of sale of an appreciated asset that triggers taxable gains, an investor has 180 days to invest up to the amount of those gains in a QOF in order to reap the potential tax advantages of the Opportunity Zone Program.
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Frequently Asked Questions (FAQ)
What do investors want to know about Opportunity Zone Funds?
What is a Qualified Opportunity Fund (QOF)?
A QOF is an investment vehicle (a corporation or partnership) created to invest in Opportunity Zone property with the goal of deferring and reducing capital gains tax under the Tax Cuts and Jobs Act (TCJA).
How does a QOF investment defer capital gains tax?
Investors can roll over almost any type of eligible gain (e.g., from stocks or real estate) into a QOF within the 180-day rule to defer tax on that gain until the end of 2026.
What are the tax benefits of a QOF after 10 years?
The primary benefit is tax-free appreciation. After a 10-year hold period, investors can exclude all federal taxes on the appreciation of the QOF investment itself.
How does a business qualify as a QOZ Business (QOZB)?
A QOZB must meet several requirements, including the 90% Asset Test (90% of its assets must be QOZ property) and demonstrate that a substantial portion of its business activity is conducted within the zone.
What is a Section 1031 like-kind exchange?
A Section 1031 exchange allows a taxpayer to defer depreciation recapture and capital gains tax when exchanging one investment property (relinquished property) for another like-kind investment property (replacement property).
What are the key deadlines in a 1031 exchange?
You must identify the replacement property within 45 days of selling the original property and complete the purchase within 180 days. A Qualified Intermediary (QI) manages the funds during this process.
What happens if a 1031 exchange fails?
If a 1031 exchange is unsuccessful (a failed 1031 exchange), the investor has immediate tax liability, but the resulting capital gain may be rolled into a QOF if they act quickly.
What is better: Opportunity Zone vs 1031 Exchange?
A QOF allows you to roll over any capital gain (stocks, business sales, real estate), while a 1031 Exchange is limited to exchanging like-kind real estate. The QOF offers tax-free growth after a 10-year hold.
Can a failed 1031 exchange be rolled into a QOF?
Yes. If a 1031 Exchange is considered failed, the resulting capital gain generally triggers a new 180-day rule to invest that gain into a Qualified Opportunity Fund, offering a critical fallback investment strategy.
Is the tax deferral indefinite with a QOF or a 1031?
The deferral is indefinite with a successful 1031 exchange (the tax liability is generally passed on to heirs). QOF deferral is not indefinite; the deferred gain is recognized on December 31, 2026.
How do OZ Funds provide liquidity to cover the 2026 deferred capital gains tax?
Many Qualified Opportunity Fund (QOF) sponsors utilize a refinance or leveraged distribution feature to generate cash flow. This Exit Strategy is designed to provide investors with a cash distribution (tax-free up to their basis) in late 2026 or early 2027 to cover the Capital Gains Tax Deferral liability due on the deferred eligible gain.
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Terms Glossary
Common Opportunity Zone (OZ) Fund Terms
10-Year Hold (Opportunity Zone Fund Strategy)
The holding period required for an investor to qualify for the full tax-free appreciation benefit on the QOF investment's final sale.
1031 Exchange
A transaction, governed by Internal Revenue Code Section 1031, that allows a property owner to defer capital gains tax and depreciation recapture when swapping one investment property for a like-kind property.
180-Day Rule (Exchange Period)
The window of time an investor has to roll their eligible gain into a Qualified Opportunity Fund (QOF), or the maximum time to complete a 1031 exchange after selling the Relinquished Property.
45-Day Identification Period
The strict deadline within a 1031 exchange by which the investor must formally identify their Replacement Property options.
90% Asset Test
The requirement that a Qualified Opportunity Fund (QOF) must hold at least 90% of its assets in Qualified Opportunity Zone Property at two annual testing dates.
Basis Adjustment
The increase in an investor's basis in their QOF investment after holding it for five and seven years, leading to a 10% or 15% exclusion of the deferred capital gains tax.
Boot
Non-like-kind property or cash received by the taxpayer in a 1031 exchange. Boot is generally taxable, often creating a Partial Exchange.
Capital Gains Rollover
The process of reinvesting eligible gain from the sale of any capital asset (stocks, business, real estate) into a Qualified Opportunity Fund (QOF) to defer taxation.
Capital Gains Tax Deferral
The core benefit of both programs, allowing an investor to postpone paying tax on a realized gain. For QOFs, the deferred gain is recognized by December 31, 2026.
Depreciation Recapture
The portion of the gain on the sale of property that is taxed at a special rate because it represents the cumulative depreciation deductions previously claimed. This is typically tax deferred in a 1031 exchange.
Constructive Receipt
A situation where an investor is deemed to have control over the exchange proceeds. If this occurs before the exchange is complete, it invalidates the 1031 tax deferral.
Contiguous Tract
A small allowance under the QOZ program for tracts adjacent to a Low-Income Community (LIC) to be designated as an Opportunity Zone.
Delaware Statutory Trust (DST)
A single-asset investment vehicle often used by passive investors to acquire fractional interests in institutional-grade Replacement Property for a 1031 exchange.
Depreciation Recapture
The portion of a gain on a property sale attributable to prior depreciation deductions, which is taxed as ordinary income unless deferred via a 1031 Exchange.
Eligible Gain
Any gain from the sale or exchange of property to an unrelated person that would be treated as a capital gain for federal tax purposes.
Exchange Accommodator Titleholder (EAT)
The entity used to hold or "park" title to a property in a Reverse 1031 Exchange or Construction 1031 Exchange.
Exchange Period
The period beginning on the transfer of the Relinquished Property and ending on the 180-Day Deadline.
Exit Strategy
The method planned for liquidating an investment. For QOFs, this often includes a Refinancing Strategy to cover the 2026 tax liability.
Failed 1031 Exchange
An exchange that violates the 45-Day Identification Period or 180-Day Rule, resulting in a taxable event that could then be rolled into a QOF within the QOF's 180-day window.
Form 8996
The form a corporation or partnership must file annually with the IRS to self-certify as a Qualified Opportunity Fund (QOF).
Inclusion Event
An event that triggers the immediate recognition of the deferred eligible gain, such as the sale or exchange of the QOF interest, or the final deadline of December 31, 2026.
Like-Kind Property
The property criterion under Section 1031, which requires that both the Relinquished Property and Replacement Property be held for productive use in a trade or business or for investment.
Liquidity Risk
The risk, especially relevant to QOFs, that an investor may not be able to readily sell their investment before the 2026 Deferred Gain Recognition date.
Low-Income Community (LIC)
The term used in the legislation to define the economically distressed census tracts that have been designated as Opportunity Zones.
Opportunity Zone (OZ)
A designated economically distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment.
Original Use
A requirement for new Qualified Opportunity Zone Property to ensure the investment is new capital. If property is not new, it must undergo Substantial Improvement.
Phantom Tax
A common term for the 2026 Deferred Gain Recognition liability, as the investor owes tax on the deferred gain even if the QOF has not distributed cash to pay it.
Qualified Intermediary (QI)
An unrelated third party that holds the proceeds from the sale of the Relinquished Property to prevent Constructive Receipt and facilitate the 1031 exchange.
Qualified Opportunity Fund (QOF)
The investment vehicle (partnership or corporation) used to pool investor capital for projects within an Opportunity Zone, and the central mechanism for the QOZ tax benefits.
Real Estate Investment
Property held primarily for rental income or long-term appreciation. Both programs are heavily utilized for Real Estate Investment.
Refinancing Strategy
A planned Exit Strategy where a QOF takes out new debt near 2026/2027 to provide a tax-free cash distribution to investors to cover their Phantom Tax liability.
Relinquished Property
The investment property that the taxpayer sells or "gives up" at the start of a 1031 Exchange.
Replacement Property
The Like-Kind Property that the taxpayer acquires in a 1031 Exchange to complete the deferral.
Reverse 1031 Exchange
An exchange structured to allow the taxpayer to acquire the Replacement Property before selling the Relinquished Property, requiring an Exchange Accommodator Titleholder (EAT).
Step-Up in Basis
In the QOF context, it refers to the permanent exclusion of gain on the post-acquisition appreciation of the QOF investment after the 10-Year Hold.
Substantial Improvement
The rule requiring a Qualified Opportunity Fund (QOF) to invest an amount in a property (within a 30-month period) equal to its initial adjusted basis, if the property's Original Use did not begin with the QOF.
Tax Cuts and Jobs Act (TCJA)
The 2017 legislation that created the Qualified Opportunity Zone program.
Tax-Free Appreciation
The benefit granted after a 10-Year Hold, where the investor can sell their QOF interest without owing federal tax on the appreciation of the QOF investment itself.
Working Capital Safe Harbor
A provision allowing a Qualified Opportunity Zone Business (QOZB) to hold capital gains cash for up to 31 months, provided it has a written plan for investment and a reasonable schedule.
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The information herein has been prepared for educational purposes only and does not constitute an offer to purchase or sell securitized real estate investments. Such offers are only made through the Sponsor’s Private Placement Memorandum (PPM) which is solely available to accredited investors and accredited entities. DST 1031 properties are only available to accredited investors (generally described as having a net worth of over $1 million dollars exclusive of primary residence) and accredited entities only. If you are unsure if you are an accredited investor and/or an accredited entity, please verify with your CPA and Attorney.
There are material risks associated with investing in DST properties and real estate securities including liquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties, financing risks, potentially adverse tax consequences, general economic risks, development risks, long hold periods, and potential loss of the entire investment principal. Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated. Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk. Because investor situations and objectives vary this information is not intended to indicate suitability for any particular investor. This material is not to be interpreted as tax or legal advice. Please speak with your own tax and legal advisors for advice/guidance regarding your particular situation.
Securities offered through Aurora Securities, Inc. (ASI), member FINRA/SIPC. Baker 1031 Properties (Baker 1031) is independent of ASI. To access Aurora Securities’ Form Customer Relationship Summary (CRS), please click HERE. Baker 1031 Properties, Jerry Baker, and (ASI) do not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstances.
Client examples are hypothetical and for illustration purposes only. Individual results may vary.
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¹The statement that "Over 30% of all experienced real estate investors work with Jerry on their 1031 exchange" is a market share estimate derived from an analysis of third-party market data as of October 2025, representing the proportional relationship between the Baker 1031 Investment investor database and an estimated total market of active real estate investors; this estimate is based on Crexi reporting a 2,000,000 user base, 80% of whom are assumed not to be agents/brokers, and 42% of activity dedicated to investment sales, from which a conservative assumption excludes 15.7% as non-investor service providers (e.g., appraisers, lenders), resulting in an estimated active investor market of 566,664; as the Baker 1031 Properties database comprises over 170,000 individuals or entities, this figure represents 30.00% of the estimated market. Important Compliance Disclosure: The figures and calculations provided constitute a market share estimate based on unverified third-party data and internal assumptions utilized to define the estimated market; Baker 1031 Properties has not independently verified the accuracy of the underlying data, and the term "experienced real estate investors" is defined exclusively by this methodology and its internal assumptions. This communication is not a guarantee of future results, a testimonial, or a statement of performance for any investment product or service, and its accuracy is subject to the inherent limitations of the underlying data and the validity of the internal exclusion assumptions.