--- title: Using Opportunity Zones to Save a 1031 Exchange description: Opportunity Zones can work in concert with a 1031 exchange and perhaps even offer a solution for investors who are running out of time to complete their exchanges.  image: https://blog.fgg1031.com/hubfs/OZ%20Zones.png --- [info@firstguardiangroup.com](mailto:) [(866)398-1031](tel:(866)398-1031) [![fgg](https://blog.fgg1031.com/hubfs/FirstGuardianGroup_2022/fgg.png)](https://brokercheck.finra.org/individual/summary/6470002) [![fgg-871923](https://blog.fgg1031.com/hubfs/FirstGuardianGroup_2023/fgg-871923.png)](https://www.bbb.org/us/ca/san-jose/profile/commercial-real-estate/first-guardian-group-1216-887513) [![logo](https://blog.fgg1031.com/hs-fs/hubfs/FirstGuardianGroup_2022/logo.png?width=175&height=56&name=logo.png "logo")](http://fgg1031.com) - [Home](https://fgg1031.com/) - [About Us](https://fgg1031.com/about-us/) - [Current Offerings](https://fgg1031.com/property-listings-directory/) - [Resource Center](https://fgg1031.com/resource-center/) - [Glossary](https://fgg1031.com/glossary/) - [Accommodators](https://fgg1031.com/accommodators/) - [FAQ](https://fgg1031.com/faqs/) - [Tax eBook](https://pages.fgg1031.com/resources/real-estate-tax-deferral-strategies-ebook) - [Real Estate eBook](https://pages.fgg1031.com/real-estate-investing-in-the-new-era2) - [QI eBook](https://pages.fgg1031.com/resources/qualifiedintermediary/ebook) - [Tax Calculator](https://fgg1031.com/tax-calculator/) - [Newsroom](https://fgg1031.com/newsroom/) - [Blog](https://blog.fgg1031.com/blog) - [Events](https://fgg1031.com/events/) - [Contact Us](https://fgg1031.com/contact/) ![search-interface-symbol](https://blog.fgg1031.com/hubfs/FirstGuardianGroup_2022/search-interface-symbol.png) ![loader](https://f.hubspotusercontent-eu1.net/hubfs/24949188/Business%20and%20Finance/global/22.gif) ![close](https://blog.fgg1031.com/hubfs/FirstGuardianGroup_2022/close.png) From Pages From Blog Pages Load More Load More **Sorry, we couldn't find a match for  "".** Check your spelling or try a related search term. 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Our general summary was that tax deferral through a 1031 exchange versus an Opportunity Zone investment would be preferable to most investors who are selling appreciated rental properties. There is also a greater incentive for investors who utilize the 1031 exchange who reside in states such as California that do not recognize Opportunity Zone benefits for deferral of state income taxes.  In this blog article, we will share insights that we have learned from our analysis of how Opportunity Zones can work in concert with a 1031 exchange and perhaps even offer a solution for investors who are running out of time to complete their exchanges.  #### **What is an Opportunity Zone Investment (QOZ)?** The Opportunity Zone investment option was introduced as part of the [Tax Cuts and Jobs Act of 2017](https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-a-comparison-for-businesses)and was widely supported by politicians on both sided of the aisle. It permits investors to defer taxes owed on the sale of most appreciated assets e.g., real estate, stocks, art collections, etc. though investing sales proceeds in designated Opportunity Zone areas throughout the US in to improve housing, infrastructure, and fuel creation of small businesses.  The investor has 180 days from the date of sale of the appreciated assets (including properties) to invest funds into a Qualified Opportunity Fund. The fund will then invest in a property located in a Qualified Opportunity Zone area.   Investors are allowed to defer payment of capital gains taxes until December 31, 2026, with the tax payable in 2027. For Opportunity Zone investments made prior to December 31, 2021, investors would receive a 10% discount on previously owed taxes. As of January 1, 2022, discounts on prior owed taxes are no longer available although a deferral of taxes is still allowed.  In addition to receiving a deferral of owed taxes investors are also permitted to receive a full exemption of capital gains taxes on the sale of projects completed in the select Opportunity Zone provided the investment is held for 10 years.  While the investor may invest both the return of their initial investment as well as the capital gain, only the capital gain portion will be eligible for future tax exemptions from gains resulting from the eventual sale of Opportunity Zone property.  Most states allow their residents to enjoy Opportunity Zone tax benefits against state income taxes. California, North Carolina, and Mississippi do not recognize QOZ benefits, and Arkansas, Hawaii, Massachusetts, and Pennsylvania only allow limited QOZ state tax benefits.  Even with these limitations, investors from across the US have found QOZ investments to be appealing and have invested over $75 billion during just the first three years of the program. #### **What are Partial and Failed 1031 Exchanges?** Readers may recall that in order to complete a full 1031 exchange tax deferral, three conditions must be satisfied with regard to replacement properties: 1. **Investors must acquire replacement properties valued equal to or greater than the property that they sold** 2. **All net proceeds after repayment of loans and other expenses must be reinvested in the replacement properties** 3. **Any debt in the property that was sold must be replaced by either equal or greater debt in the replacement properties or// by adding cash from outside the exchange to reduce this debt requirement dollar-per-dollar** Furthermore, from a timing standpoint: 1. **All replacement properties must be identified within 45 days of the close date of the sold property** 2. **Identified properties must be acquired within 180 days of the close date of the sold property** A partial or failed [1031 exchange](https://blog.fgg1031.com/blog/1031-exchange-basics-explained) may occur when the investor is not able to achieve all these requirements either by making a conscious decision to take funds out of the exchange, reducing debt in the acquired property (thereby incurring a partial tax liability) or by simply not being able to meet all the exchange requirements e.g., inability to find and identify suitable replacement properties, obtain financing, or to successfully close on the identified replacement properties.  While the tax liability incurred in a partial exchange may be tolerable, the consequences of a failed exchange resulting a full tax liability may not be an acceptable outcome.  #### **How Can an Opportunity Zone Investment Save a 1031 Exchange?** Recent discussions with 1031 investors, [Qualified Exchange Intermediaries](https://pages.fgg1031.com/resources/qualifiedintermediary/ebook), and real estate attorneys have provided useful insights as to how Opportunity Zones investments can be utilized to defer taxes that may be owed either in a partial or failing 1031 exchange.   There are two broad areas where it may make sense for investors to shift away from a 1031 reinvestment strategy to a Opportunity Zone investment may be helpful in negative lessening tax consequences: ### *Inability to Find Suitable Replacement Properties within the 45-day ID Period* In our experience, most real estate investors who evaluate options to either defer taxes via a 1031 exchange or an Opportunity Zone, will elect to move forward with a 1031 exchange due primarily to their ability to continue to defer and potentially avoid taxes altogether. However, many investors who are not able to find suitable replacement properties face the risk of incurring a tax obligation when their 45-day ID period comes to end.  Even though the Opportunity Zone may have not been their first choice, many who are running out of time may elect to take their funds out of the exchange and, instead, invest those funds in a suitable Opportunity Zone investment. Yes, capital gains taxes will need to be paid in 2026 (at a slight discount) – but, in combination with the potential capital gain exemption on the property developed in the Opportunity Zone, the overall investment may prove to be an attractive alternative to paying a hefty near-term tax on the sale of their rental property.  ### ***Inability to Close on Identified Replacement Properties within the 180-day Period*** The selection of properties during the 45-day ID period is only one step in the 1031 exchange process. Identified properties must also be fully acquired within 180-days of the close of the sale. As all seasoned real estate investors know, there are an infinite number of reasons why acquisitions fail to close. Unanticipated events are common in real estate including discovered property defects, issues obtaining financing, personal reasons, etc. When it appears that closing an acquisition within 180 days cannot be achieved, an Opportunity Zone alternative may make sense.  #### **Final Thoughts**  It is very important for investors who are initiating a 1031 exchange to review permitted options to make changes during the exchange with their selected Qualified Intermediary. Rules governing changes during the exchange are not uniform throughout the exchange industry and not all Qualified Intermediaries will allow investors to make desired changes, even if not prohibited in the tax code.  We encourage all 1031 exchangers to confirm the limit to which their Qualified Intermediary will permit possible changes in their exchange process including exiting the exchange and instead reinvesting funds in Opportunity Zones.  For more information on Opportunity Zone investments or 1031 exchanges, please reach out to our investment team at info@fgg1031.com. We're happy to answer your questions and help you explore your options.  --- #### Have you downloaded our ebook? [![](https://no-cache.hubspot.com/cta/default/5468919/interactive-183026367788.png)](https://blog.fgg1031.com/hs/cta/wi/redirect?encryptedPayload=AVxigLIW0XiMMseH8VFrEJzmxzDDZL8nwUIeW1%2FsuTVncvP3qVugg4NVRgEZrjkbB734v6IqsEaUTMEL%2FTAK%2FtH1fROvo6fkdtdSJ3Zk5CUh63MzAZO%2BC%2BuYRhb3ZiQSrhosn5jMnY6jHNNMgZqhhzbFhXu%2F6LC2l8yytmWRQ6KBHvdgT5NExhVW57ZZmjVFNA457npbzwqKXWnBurxZkFlDowJuvWej4gebrDjVUVLWRlhI&webInteractiveContentId=183026367788&portalId=5468919)   --- ##### **Help Save 1031 Exchanges** Write to your Member of Congress and Senators urging them to oppose restricting Section 1031 like-kind exchanges. As part of the American Families Plan, the Biden Administration has proposed eliminating the application of Section 1031 for gains greater than $500,000. Like-kind exchanges have been part of the U.S. tax code since 1921 and are one of the tax code’s most powerful economic tools. It is critical that we all vigorously and visibly oppose this proposal. Make your voice heard with a pre-filled letter, which you can customize to add personal anecdotes or powerful client stories to highlight the positive impact of Section 1031 like-kind exchanges. Take action today by clicking [HERE](https://p2a.co/XLBiUYT)[**.**](https://p2a.co/XLBiUYT) --- ### [Paul Getty](https://blog.fgg1031.com/blog/author/paul-getty) Paul M. Getty is one of the most experienced 1031 exchange specialists in the United States, with a career in real estate that spans over 35 years and more than $5 billion in commercial transactions across every major asset class. His work covers single-family rentals, apartments, retail, office, multifamily, and student and senior housing, giving him a practical understanding of how different property types perform across market cycles and how investors can move between them using tax-deferred exchange strategies. As President and CEO of FGG1031 | First Guardian Group, Paul advises investors through the full 1031 exchange process, from identifying qualifying replacement properties to structuring acquisitions through Delaware Statutory Trusts (DSTs) and wholly owned real estate. His guidance covers both the compliance requirements of a valid exchange and the investment decisions that determine long-term portfolio outcomes – a combination that is difficult to find in a single advisor. Paul holds a California and Texas real estate broker license and carries Series 22, 62, 63, and 82 securities licenses as a registered representative with Emerson Equity LLC, member FINRA /SIPC. He has represented buyers and sellers across complex commercial transactions, sourced and structured debt and equity, and worked alongside nationally recognized firms including Marcus Millichap, CBRE, JP Morgan, and Morgan Stanley. Before founding FGG1031, he co-founded Venture Navigation, a boutique investment banking firm whose M&A and IPO activity generated over $700 million in investor returns. Paul holds an MBA in Finance from the University of Michigan and a bachelor’s degree in chemistry from Wayne State University. He has also completed coursework in artificial intelligence at Stanford University. He is the author of four books on real estate investing and tax deferral strategy, including Tax Deferral Strategies Utilizing the Delaware Statutory Trust (DST) and Real Estate Investing in the New Era, both available on Amazon. A frequent speaker on 1031 exchanges, DST investing, and real estate tax strategy, Paul Getty is a recognized voice for investors and advisors seeking guidance on capital preservation through tax-deferred real estate investment. ## Your Comments : This is a search field with an auto-suggest feature attached. - There are no suggestions because the search field is empty. - Latest Posts - Popular Posts [Partial 1031 Exchange: How It Works, What Gets Taxed, and When It May Make Sense](https://blog.fgg1031.com/blog/partial-1031-exchange-how-it-works) [ 1031 Exchange](https://blog.fgg1031.com/blog/topic/1031-exchange) [721 UPREIT Options in DST Programs (Part 3)](https://blog.fgg1031.com/blog/721-upreit-options-in-dst-programs) [ Real Estate Investors](https://blog.fgg1031.com/blog/topic/real-estate-investors) [ DST](https://blog.fgg1031.com/blog/topic/dst) [ 721 Exchange](https://blog.fgg1031.com/blog/topic/721-exchange) [ UPREIT](https://blog.fgg1031.com/blog/topic/upreit) [ New featured](https://blog.fgg1031.com/blog/topic/new-featured) [Can a 9% Taxable Return Beat a 4.5% Tax Advantaged DST?](https://blog.fgg1031.com/blog/can-a-9-taxable-return-beat-a-4.5-tax-advantaged-dst) [ Real Estate Investors](https://blog.fgg1031.com/blog/topic/real-estate-investors) [ DST](https://blog.fgg1031.com/blog/topic/dst) [ New featured](https://blog.fgg1031.com/blog/topic/new-featured) ### Categories - 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[Investing in Senior Housing October 20, 2022](https://blog.fgg1031.com/blog/investing-in-senior-housing) - [A Closer Look at the 7 Deadly Sins October 20, 2022](https://blog.fgg1031.com/blog/a-closer-look-at-the-seven-deadly-sins) - [What is a Springing LLC? October 20, 2022](https://blog.fgg1031.com/blog/what-is-a-springing-llc) ## Useful Links - Home - About Us - Blogs - Testimonials from Past Customers - Resource Center - Current Offerings Disclaimer: There is no guarantee that any strategy will be successful or achieve investment objectives. All real estate investments have the potential to lose value during the life of the investments. This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please be aware that this material cannot and does not replace the Memorandum and is qualified in its entirety by the Memorandum. This material is not intended as tax or legal advice so please do speak with your attorney and CPA prior to considering an investment. This material contains information that has been obtained from sources believed to be reliable. However, FGG1031, First Guardian Group, LightPath Capital, Inc., and their representatives do not guarantee the accuracy and validity of the information herein. Investors should perform their own investigations before considering any investment. There are material risks associated with investing in real estate, Delaware Statutory Trust (DST) and 1031 Exchange properties. These include, but are not limited to, tenant vacancies, declining market values, potential loss of entire investment principal. Past performance is not a guarantee of future results: potential cash flow, potential returns, and potential appreciation are not guaranteed in any way and adverse tax consequences can take effect.  The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities. All financed real estate investments have a potential for foreclosure. Delaware Statutory Trust (DST) investments are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments. Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions. Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits. IRC Section 1031, IRC Section 1033, and IRC Section 721 are complex tax codes; therefore, you should consult your tax and legal professional for details regarding your situation. DST 1031 properties are only available to accredited investors (generally described as having a net worth of over one million dollars exclusive of primary residence) and accredited entities only (generally described as an entity owned entirely by accredited individuals and/or an entity with gross assets of greater than five million dollars). If you are unsure if you are an accredited investor and/or an accredited entity, please verify with your CPA and Attorney prior to considering an investment. Securities offered through registered representatives of [LightPath Capital, Inc.](http://www.lightpathcapital.com/) Member [FINRA](http://www.finra.org/) / [SIPC](https://www.sipc.org/). FGG1031, First Guardian Group, and LightPath Capital, Inc. are separate entities. Copyright 2022, All Rights Reserved, FGG1031 [![FGG_Footer_White](https://blog.fgg1031.com/hs-fs/hubfs/FirstGuardianGroup_2022/FGG_Footer_White.png?width=300&height=95&name=FGG_Footer_White.png "FGG_Footer_White")](http://fgg1031.com) 97 East Brokaw Road, Suite 350, San Jose, CA 95112 [(866) 398 1031](tel:(866)%20398%201031) [info@firstguardiangroup.com](mailto:) [![Bitmap](https://blog.fgg1031.com/hubfs/FirstGuardianGroup_2023/Bitmap.png)](https://brokercheck.finra.org/individual/summary/6470002) ## Recent Blogs - [Understanding the Difference Between Inheritance and Estate Tax August 3, 2023](https://blog.fgg1031.com/blog/understanding-the-difference-between-inheritance-and-estate-tax) - [Public or Private Real Estate? Your Investment Portfolio May Need Both July 27, 2023](https://blog.fgg1031.com/blog/public-or-private-real-estate-your-investment-portfolio-may-need-both) - [How to Use 1031 Exchange Funds to Improve Your Replacement Property July 20, 2023](https://blog.fgg1031.com/blog/how-to-use-1031-exchange-finds-to-improve-your-replacement-property) ## Useful Links - [Home](http://fgg1031.com/) - [About Us](https://fgg1031.com/about-us/) - [Blogs](https://blog.fgg1031.com/blog) - Testimonials from Past Customers - [Resource Center](https://fgg1031.com/resource-center/) - [Current Offerings](https://fgg1031.com/property-listings-directory/) FGG1031 | First Guardian Group and Emerson Equity LLC do not provide legal or tax advice. Securities offered through [Emerson Equity LLC](http://www.emersonequity.com/) Member [FINRA/SIPC](http://finra.org/) and MSRB registered. Emerson Equity LLC is unaffiliated with any entity herein. 1031 Risk Disclosure: - There is no guarantee that any strategy will be successful or achieve investment objectives; - Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments; - Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities; - Potential for foreclosure – All financed real estate investments have potential for foreclosure; ·Illiquidity – Because 1031 exchanges are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments; - Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions; - Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits No offer to buy or sell securities is being made. Such offers may only be made to qualified accredited investors via private placement memorandum. Risks detailed in a private placement memorandum should be carefully reviewed, understood and considered before making such an investment. Prospective strategies and products used in any tax advantaged investment planning should be reviewed independently with your tax and legal advisors. Changes to the tax code and other regulatory revisions could have a negative impact upon strategies developed and recommendations made. Past performance and/or forward looking statements are never an assurance of future results. Many of the investments offered will be only available to those investors meeting the definition of an Accredited Investor under SEC Rule 501(A) and offered as Regulation D private placement securities via a Private Placement Memorandum (“PPM”). Prospective investors must receive, read and understand all of the risks associated with buying private placement securities. Investments are not guaranteed or [FDIC](http://fdic.org/) insured and risks may include but are not limited to illiquidity, no guarantee of income or guarantee that all tax advantages or objectives will be met and complete loss of principal investment could occur. **Risk Disclosure:** Alternative investment products, including real estate investments, notes & debentures, hedge funds and private equity, involve a high degree of risk, often engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees which may offset any trading profits, and in many cases the underlying investments are not transparent and are known only to the investment manager. Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop. There may be restrictions on transferring interests in any alternative investment. Alternative investment products often execute a substantial portion of their trades on non-U.S. exchanges. Investing in foreign markets may entail risks that differ from those associated with investments in U.S. markets. Additionally, alternative investments often entail commodity trading, which involves substantial risk of loss. NO OFFER OR SOLICITATION: The contents of this website: (i) do not constitute an offer of securities or a solicitation of an offer to buy of securities, and (ii) may not be relied upon in making an investment decision related to any investment offering by FGG1031 | First Guardian Group, Emerson Equity LLC, or any affiliate, or partner thereof. FGG1031 | First Guardian Group does not warrant the accuracy or completeness of the information contained herein. Copyright 2026, All Rights Reserved, FGG1031