Opportunity Zones or 1031 Exchanges

Written By Gerald F. Baker, III

Qualified Opportunity Zones (QOZs) and 1031 exchanges are both tax-advantaged strategies available to real estate investors, however, each has its set of pros and cons and specific requirements need to be met. The main appeal of QOZ investments is their capital tax deferral benefit. Any capital gains realized within 180 days of a QOZ investment can be eligible for capital gains tax deferral until December 31, 2026, or until the investment is sold, whichever comes first. If the investment is held for at least 10 years, capital gains tax is completely eliminated.

Maximizing QOZ Benefits

Unlike 1031 exchanges, in a QOF transaction, 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.

  • Defer taxable income from gain until 12/31/2026

  • 10+ year hold on QOF (qualified opportunity fund) allows for complete tax elimination

With a 1031 exchange, investors have the potential for continuous capital gain tax deferral when they swap one real estate investment property for another “like-kind” property and continue to “swap till you drop” by reinvesting their gains.

Both strategies can serve as powerful investment tools, each with its own specific timeline to follow. The choice depends on the individual investor’s situation and goals.

The table below outlines similarities and differences between a QOZ and 1031 Exchange transaction.

1031 Exchange vs. Opportunity Zone Comparison Table

When should you consider a QOZ investment?

  • Sale of Business

  • Sale of Real Estate

  • Sale of Stocks

Content courtesy of Inland.

Gerald F. Baker, III

After working in various institutional investment firms, Jerry Baker founded Baker 1031 Funds, an investment firm dedicated to providing individual real estate investors with tailored 1031 exchange solutions. Baker 1031 Funds was established with the mission of offering individual investors the same opportunities as institutional investors, enabling them to enjoy the benefits large institutions typically have—without compromising what matters most to the individual investor.

Before founding Baker 1031 Funds, Jerry held key positions in the real estate private equity and hedge fund sectors. He served in various roles, including as a member of the investment committee, portfolio manager, and trading desk director. Over the course of his career, Jerry has been involved in more than $10 billion in commercial real estate transactions.

Much of Jerry’s real estate and investment expertise stems from his time spent working alongside his father and uncle in the family business. Whether underwriting potential acquisitions with his father or assisting his uncle with property maintenance, Jerry developed a hands-on understanding of real estate investing. These experiences not only equipped him with valuable skills but also gave him insight into the advantages institutional investors hold over individual investors, as well as a deep appreciation for the goals and challenges individual investors face.

Jerry is dedicated to supporting children's organizations in Detroit, Los Angeles, and New York. He is also an active contributor to the Babson College Alumni Association, focusing on student finance and real estate initiatives.

https://baker1031funds.com
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