Who This Matters For
This blog is intended for investors who currently hold Qualified Opportunity Fund (QOF) investments and are approaching the end of the Opportunity Zone deferral period.
It may be particularly relevant for:
- Investors with deferred Opportunity Zone gains
- Individuals with private real estate or alternative investments
- Investors evaluating tax planning strategies for 2026
- Those working with tax and wealth management professionals on long-term planning
As the end of the deferral period approaches, investors may want to revisit the original gain invested in the QOF, understand how it may be treated for tax purposes, and evaluate whether additional planning may be appropriate.
Understanding the 2026 Opportunity Zone Tax Event
The Opportunity Zone program was created to encourage long-term investment in designated communities. Under the program, investors could generally defer certain eligible gains by reinvesting them in a Qualified Opportunity Fund.
That deferral, however, was temporary.
Unless an earlier taxable event has occurred, the original deferred gain generally must be recognized by December 31, 2026. This may apply even when the investor continues to hold the QOF investment. The IRS describes the applicable date as the earlier of an inclusion event or December 31, 2026.
Two points are especially important:
- Investors are not generally required to sell their QOF investments in 2026
- The 2026 taxable event relates to the original deferred gain, not necessarily the sale or performance of the QOF investment
Understanding that distinction is an important first step in preparing for the end of the deferral period.
Why Investors May Want to Begin Planning
The recognition of a deferred gain may create a tax obligation without producing cash from the QOF investment itself. An investor who plans to continue holding the investment may therefore need to satisfy the associated tax obligation using other available resources.
Beginning the conversation early can give investors and their advisors additional time to evaluate:
- The potential tax associated with the deferred gain
- Whether sufficient cash or liquid assets may be available
- How the gain may be characterized for tax purposes
- Whether other planning strategies may apply
- How the QOF investment fits within their broader portfolio
All investors’ circumstances are different. Any potential strategy should be evaluated with qualified tax, legal, and financial advisors.
Passive vs. Nonpassive Income
A key consideration is how the original deferred gain will be characterized when it is recognized. Under the Opportunity Zone regulations, deferred gain generally retains the tax attributes it would have had if it had not been deferred. Accordingly, individuals and their advisers should determine whether the original gain would be treated as passive or nonpassive under the passive activity loss rules of Section 469.
For many real estate-oriented investors, passive income classification of your deferred gain may:
- Provide additional flexibility for offsetting income with passive losses
- Align with broader portfolio strategies focused on income generation
- Be relevant when evaluating participation in certain private investment structures
However, it is important to recognize:
- Not all investors will have passive income treatment
- Classification can depend on individual tax circumstances
Classification should be evaluated in consultation with a qualified tax advisor.
Where Private Real Estate May Fit In
Private real estate may be one component of a broader investment and tax planning strategy. Depending on the investment structure and the investor’s individual circumstances, private real estate may provide:
- Exposure beyond traditional stocks and bonds
- Potential income
- Portfolio diversification
- Potential depreciation-related tax benefits
These potential benefits are not available in every investment or to every investor. As with any investment, private real estate involves risks that should be carefully evaluated alongside potential benefits.
Offerings such as MLG Fund VII may be one of several options considered by accredited investors evaluating private real estate exposure. Any decision should be based on the investor’s objectives, risk tolerance, liquidity needs, and consultation with qualified advisors.
MLG Capital works with accredited investors and their tax advisors to evaluate various private real estate structures and planning considerations. If you’re approaching the 2026 Opportunity Zone tax event and would like to explore how private real estate strategies may fit within your broader investment and tax planning objectives, our team is available to discuss MLG’s private real estate offerings and how they may fit within your broader investment strategy.
Planning Strategies Investors May Explore
There is no single strategy that applies to every Opportunity Zone investor. Depending on an investor’s tax position, liquidity needs, and broader financial goals, several areas may be worth discussing with professional advisors.
Passive Loss Generation and Release
If the original deferred gain is treated as passive income, passive losses from other investments may be relevant.
Certain real estate investments may generate passive losses, including losses associated with depreciation. Depending on the investor’s circumstances, current-year or previously suspended passive losses may be available to offset passive income. This approach is not universally applicable and depends on both the classification of the gain and the investor’s broader tax profile.
Investors interested in this topic can also learn more about MLG Capital’s passive loss release strategy.
Tax Loss Harvesting
Tax-loss harvesting generally involves selling an investment at a loss so that the loss may be used to offset capital gains.
Because the timing and treatment of losses can affect whether they are available, investors should work with their tax and financial advisors before making changes to their portfolios. Investors should also consider whether applicable rules, including wash-sale limitations, could affect the intended result.
Charitable Giving
Some investors may consider charitable giving as part of a broader tax and financial plan.
The potential effect of a charitable contribution can depend on several factors, including the type of asset contributed, the recipient organization, the investor’s adjusted gross income, and applicable deduction limitations. A charitable contribution may complement other planning strategies, but it should not be assumed to fully offset the recognized gain.
Liquidity Planning
Regardless of which strategies may apply, liquidity is an important consideration.
Investors may want to evaluate:
- Available cash and liquid assets
- Expected income or investment distributions
- Other upcoming financial obligations
- Potential portfolio rebalancing
- The timing of estimated or final tax payments
Reviewing these items in advance may help investors avoid making rushed portfolio decisions as the end of 2026 approaches.
Working with Advisors
Opportunity Zone investments can involve overlapping tax, legal, financial, and investment considerations. Investors may benefit from coordinating with:
- Certified Public Accountants (CPAs)
- Tax advisors
- Attorneys
- Financial advisors or wealth managers
A coordinated approach may help investors understand how the 2026 taxable event fits within both their near-term tax planning and long-term financial objectives.
Conclusion
December 31, 2026, represents an important milestone for investors who deferred eligible gains through Qualified Opportunity Funds.
Investors may want to consider:
- How the original deferred gain may be treated
- Whether sufficient liquidity is available
- Which planning strategies may apply to their circumstances
- When to begin coordinating with their professional advisors
For investors approaching the 2026 recognition event, now may be an appropriate time to review existing plans, revisit long-term investment objectives, and evaluate whether additional strategies should be considered as part of a broader wealth and tax planning discussion.
Frequently Asked Questions
What happens to Opportunity Zone investments in 2026?
According to Internal Revenue Code Section 1400Z-2(b)(1) and Treasury Regulation 1.1400Z2(b)-1(b), deferred gains invested into Qualified Opportunity Funds are generally scheduled to be recognized as taxable income for the taxable year that includes December 31, 2026, unless an earlier inclusion event occurred.
Do I have to sell my investment?
No. The tax recognition event is tied to the original deferred gain, not necessarily the sale of the investment.
How is the deferred tax calculated?
The calculation is based on the original deferred gain and applicable basis adjustments. Investors should consult a tax advisor for specific details.
Can losses offset Opportunity Zone gains?
In certain cases, capital losses or passive losses may offset gains, depending on classification and individual circumstances.
What are passive loss strategies?
These strategies involve using losses from passive investments, such as rental real estate, when the individual has sufficient passive income to release those losses. In the Opportunity Zone context, if the deferred gain recognized in 2026 is treated as passive income, current-year passive losses from other investments may be available to reduce taxable income.
Disclaimer
This article is provided for informational and educational purposes only and does not constitute tax, legal, accounting, investment, or other professional advice. The tax consequences of any investment or strategy will depend on an investor’s individual circumstances. Investors should consult their own tax, legal, and financial advisors before making any investment or tax-planning decisions.
Securities offered through North Capital Private Securities, Member FINRA/SIPC. Its Form CRS may be found here and its BrokerCheck profile may be found here. NCPS does not make investment recommendations and no communication, through this website or in any other medium, should be construed as a recommendation for any security offered on or off this investment platform.
Investments in private offerings are speculative, illiquid, and may result in a complete loss of capital. Past performance is not indicative of future results. Prospective investors should conduct their own due diligence and are encouraged to consult with a financial advisor, attorney, accountant, and any other professional that can help them to understand and assess the risks associated with any investment opportunity.
This offering includes risks and uncertainty many of which are not outlined herein including, without limitation, risks involved in the real estate industry such as market, operational, interest rate, occupancy, inflationary, natural disasters, capitalization rate, regulatory, tax and other risks which may or may not be able to be identified at this time and may result in actual results differing from expected.
Advisory services offered through MLG Fund Manager LLC, an investment adviser registered with U.S. Securities & Exchange Commission.
