Qualified Opportunity Fund

A Qualified Opportunity Fund (QOF) is the investment vehicle through which capital flows into the Opportunity Zone program. Defined under IRC Section 1400Z-2, a QOF is a corporation or partnership organized for the purpose of investing in Qualified Opportunity Zone property and must hold at least 90% of its assets in such property, tested semi-annually, or pay a penalty. An investor with a recently realized capital gain has 180 days to invest that gain into a QOF to defer the tax; only the gain needs to be reinvested, not the full proceeds. The QOF then deploys the capital into qualifying real estate or operating businesses located in designated Opportunity Zones, typically through ground-up development or substantial rehabilitation, since the program requires that property be original-use or substantially improved. The headline incentive is that an investor who holds the QOF interest for at least ten years can elect to step up the basis of the investment to its fair market value on sale, permanently excluding the appreciation from federal capital gains tax. QOFs self-certify with the IRS on Form 8996. They are illiquid, development-stage investments that carry significant risk, and they are generally offered only to accredited investors.