1031 vs. OZ: a decision framework for the post-OBBB era
The One Big Beautiful Bill Act made Opportunity Zones permanent. That changes the math meaningfully — but not in the direction most CPAs are pitching.
The One Big Beautiful Bill Act (signed July 4, 2025) made the QOZ program permanent, eliminated the December 31, 2026 sunset, established a 10-year rolling redesignation cycle, and added enhanced incentives for Qualified Rural Opportunity Funds (30% basis step-up at five years vs. 10% non-rural; 50% substantial improvement threshold vs. 100%). The first new round of QOZ designations takes effect January 1, 2027.
On its face, this looks like a strong tailwind for QOFs vs. 1031 exchanges. In practice, the choice still depends on three factors: (1) do you want to stay invested in the same asset class? (2) what's your hold horizon? (3) what's your post-death plan?
If you want to stay in direct real estate and you have a horizon under 10 years, 1031 is almost always better. Defer all gain; trade up indefinitely; if held to death, basis steps up and the embedded gain disappears entirely. The 1031 wrapper is more flexible and the QI cost ($1,500–$3,000) is trivial vs. the deferred tax.
If you have a 10+ year horizon and want exposure to QOZ-eligible projects (often urban development, sometimes industrial), the QOF math becomes powerful: the 10-year hold makes QOF appreciation tax-free. The trick is that QOZ deals are still securities transactions with sponsor risk — and the new OBBB rural designations create both opportunity (better step-up) and risk (less institutional underwriting infrastructure).
The third path nobody talks about: do both. Roll capital gains from a sale into a QOF for the deferral, take the basis recovery as cash, and use a 1031 on a separately-timed investment property exit. Multi-vehicle tax planning is where serious investors create durable alpha. Run the numbers in the Tax Strategy calculator.