Some high-earning investors will soon owe taxes on years of deferred capital gains — SkimNews
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- The Tax Cuts and Jobs Act of 2017 created Qualified Opportunity Funds with several capital gains incentives, and the deferral period ends Dec. 31, 2026, making all deferred gains taxable as of that date per expert Jason Watkins.
- The Treasury Department's Office of Tax Analysis reported $75 billion in aggregate deferred gains outstanding at the end of 2024, held across roughly 12,800 Qualified Opportunity Funds and about 41,000 investors.
- The typical individual Opportunity Zone investor had adjusted gross income of $738,000 in 2024, with individuals making up 85% of investors and corporations accounting for the rest.
- Investors who entered funds by the end of 2019 receive a 15% basis step-up, paying tax on only 85% of deferred gains; those in by end of 2021 get a 10% step-up, per the article.
- President Trump's "big beautiful bill," enacted last summer, made Opportunity Zones permanent and restructured incentives so that starting Jan. 1, 2027, all new investors get a five-year deferral plus a 10% basis step-up regardless of entry timing.
- Rural-focused Opportunity Funds qualify for an enhanced 30% step-up in basis on originally deferred gains after five years under the new legislation, per Watkins.
Why it matters: Roughly 41,000 investors — with a typical AGI of $738,000 — must cover taxes on years of deferred capital gains by year-end or risk surprises. The 10-year hold, however, unlocks tax-free exit gains valued far higher than the tax bill, and Watkins expects most investors to remain invested rather than liquidate to pay.
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