After starting as a temporary program, QOF tax incentives became a permanent part of the U.S. tax code in July of 2025.
Investors should consider using Roth IRAs and Qualified Opportunity Funds (QOFs) in tandem:
- Roth IRAs: Build a tax-free retirement plan through after-tax annual contributions and IRA conversions.
- QOFs: Move additional savings into tax-free status quickly, while deferring and partially eliminating the initial tax bill.
Together, they expand the portion of a portfolio that can grow tax-free, bringing greater clarity to the amount of savings that will ultimately be accessible given the uncertain future tax environment in the decades to come.
The QOF’s 30-Year Tax Elimination Benefit
The most compelling incentive for Qualified Opportunity Fund (QOF) investors is the ability to compound gains entirely tax-free for up to 30 years. Much like a Roth IRA, this feature can generate significant long-term wealth while protecting assets from future, potentially higher, tax rates. But unlike a Roth IRA, QOFs have no annual contribution caps or income limitations. The only requirement is that contributions must not exceed capital gains realized within the past 180 days.
It’s important to understand that the 100% tax elimination applies exclusively to the appreciation of the QOF investment itself. Taxable events triggered by the QOF’s underlying operations, such as the sale of appreciated property or taxable business income, such as dividends, will still result in tax liability unless the fund is liquidated. To maximize the “Roth-like” benefit, QOFs should be structured to:
- Emphasize long-term, buy-and-hold strategies to reduce taxable events
- Offset ongoing income with interest deductions and depreciation
- Enable investors to remain fully invested for the entire 30-year window
Most QOFs are not set up to work in a way that resembles a Roth IRA. In fact, QOFs typically have a planned liquidation shortly after the minimum 10-year hold is achieved. This is because the fund was created to make the appreciation on specific real estate development tax-free. It is a solid strategy, but to work like a Roth IRA, the funds need to run for the long term.
To find a QOF that can aid your long-term tax-free planning, look for a QOF that allows the investor to determine their own holding period. The QOF should plan to stay compliant over the decades. Additionally, avoid carried interest fees because these fees are only paid to the manager when a property is sold. It incentivizes the QOF manager to sell properties, triggering capital gains tax at the fund level, which defeats the purpose of the tax benefit.
Whether an investor realizes $10,000 or $10 million in gains, the full amount can qualify. This makes QOFs one of the most powerful tools available to accelerate tax-free portfolio growth, potentially achieving in a single transaction what could otherwise take decades of Roth IRA contributions.
Tax Incentives offered by QOFs
For U.S. taxpayers residing abroad, Qualified Opportunity Funds can be an effective tool for deferring and eliminating U.S. tax liabilities. Nevertheless, the ultimate tax outcome is determined by how U.S. rules align with the tax laws of your country of residence.
Under the new legislation, eligible QOF investments receive two major benefits:
- 5-year deferral of taxable capital gains and a 10% elimination of the gain: The deferral benefit lasts for five years from the date of the QOF purchase or the sale of the QOF, whichever comes first. To benefit from the 10% elimination benefit, the taxpayer must hold the QOF for a minimum of 5 years.
The deferral benefit can be thought of as a 5-year interest-free loan on your tax liability with 10% principal forgiveness.
- 100% elimination of taxable capital gain income: After a 10-year hold, the taxpayer can elect to step up their cost basis in their QOF investment to current market value when they exit the fund. This eliminates all taxable capital gain income, so it eliminates not only capital gains tax but net investment income tax (NIIT) or any future tax targeting this income; any amount multiplied by zero is zero. This benefit lasts for 30 years from the date of the QOF purchase.
The elimination benefit can function like a Roth IRA, enabling a greater portion of the taxpayer’s savings to achieve tax-free status.
The current OZ program only offers a deferral until December 31, 2026, and the elimination benefit lasts until 2047. The enhanced benefits described above are applicable to QOF investments made after January 1, 2027. Learn how to potentially keep current capital gains eligible for these enhanced benefits in our blog post Mind the Gap.
Comparison of Roth IRAs and QOFs
Although their tax benefits can be similar, the mechanics of Roth IRAs and QOFs are very different.
- Contribution limits: Roth IRAs cap contributions at $7,000–$8,000 per year, depending on age. QOFs have no contribution limits, other than requiring that investments are only eligible up to the amount of capital gains realized in the last 180 days.
- Income restrictions: Roth IRAs phase out at higher income levels. QOFs have no income restrictions.
- Roth conversions vs. QOF deferral: A Roth conversion allows investors to move large sums into tax-free status, but only by triggering immediate taxation. A QOF can also move large amounts of capital gains into tax-free status while also offering deferral and partial elimination benefits on the original tax liability.
- Exit rules: Roth IRAs require investors to reach age 59½ (and meet the 5-year rule) to avoid early withdrawal penalties.
QOFs can be sold at any time without penalty. Any unrealized tax deferral incentive would end at the time of the sale, and the 100% elimination benefit would only be available if the investor had held the QOF for at least 10 years. - Roth account versus a QOF: Roth IRAs have the advantage of being a tax-free account. This gives investors the flexibility to make many investments within the account. The QOF is a singular investment that can own multiple qualifying investments within designated opportunity zones. Almost all QOFs invest in new or highly renovated commercial property for opportunity zone compliance reasons.
- Generational wealth transfer: The tax-free benefit of a QOF lasts for 30 years and the beneficiary “steps into the shoes” of the decedent in all aspects of the QOF investment. So, if the decedent bought the QOF 15 years before their death, the beneficiary would still have the potential for another 15 years of tax-free growth with the option to sell without tax at any time. Roth IRAs have a lifetime benefit but typically need to be liquidated by the beneficiary within 10 years of the decedent’s passing.
The Snowball Effect of Tax-Free Compounding
To maximize the growth of a snowball rolling down a hill, you want to get as many revolutions as possible because it is the last few revolutions that pick up the most snow. As a lifetime benefit in the case of a Roth IRA or the 30-year benefit for QOFs, both are great at providing many revolutions, or in this case, “years of compounding.”
For taxpayers considering a QOF investment, it is important to point out the importance of being able to stay invested for as long as their personal financial needs allow. Keep in mind that the majority of QOFs have planned liquidations shortly after the 10-year minimum hold is achieved. This chart highlights the snowball effect and the significant potential for tax savings beyond the minimum qualifying holding period for the tax elimination benefit of 10 years.
Chart: Percentage of total potential tax savings realized over time with a QOF investment, assuming a 10% growth rate and a 23.8% tax rate (20% capital gains + 3.8% NIIT).
While less than 10% of potential tax savings occur in the first decade, the effect snowballs dramatically in later years.
As the chart shows for this example:
- Only about 10% of potential tax savings occur by year 10.
- Roughly a third of tax savings are realized by year 20.
- 100% of tax savings are captured by year 30. Incredibly, this is ten times the tax savings achieved after a 10-year hold!
Conclusion
Roth IRAs and QOFs can be a powerful combination for tax-free financial planning. Roth IRAs can provide tax-free growth for a wide variety of investments for a lifetime. QOFs give taxpayers the potential to move much higher dollar amounts into tax-free status, potentially achieving in a single transaction what could otherwise take decades’ worth of Roth IRA contributions. In short, for tax-free planning, Roth IRAs and QOFs are a great one-two punch.
Park View OZ REIT: The Streamlined Approach to QOF Investing
Unique Public Access: Park View OZ REIT is the only Qualified Opportunity Fund with publicly traded shares (trading symbol: PVOZ).
Flexible Entry Options: Begin with as little as one share on the open market or $10,000 through our subscription agreement.
Investment Timeline Freedom: Exit at your discretion without penalty. With no planned 10-year liquidation, maximize potential tax-free growth for 30 years.
Simplified Tax Reporting: Avoid the complexity and delays of partnership K-1 tax forms.
Open to All Investors: No accreditation requirements to participate.
Convenient Purchasing Methods: Buy shares through your existing brokerage account or directly via our website’s electronic subscription agreement.
Are you ready to see how QOFs can benefit you?
Materials provided by Park View OZ REIT or our affiliates have been prepared for informational purposes only and are not intended to provide or be relied on for tax, legal, or financial advice. You should consult your own tax and legal advisors before engaging in any transaction.