26 U.S.C. § 1400Z: Special rules for capital gains invested in opportunity zones

gross income for the taxable year shall not include so much of such gain as does not exceed the aggregate amount invested by the taxpayer in a qualified opportunity fund during the 180-day period beginning on the date of such sale or exchange, the amount of gain excluded by subparagraph (A) shall be included in gross income as provided by subsection (b), and subsection (c) shall apply. with respect to a sale or exchange if an election previously made with respect to such sale or exchange is in effect, or with respect to any sale or exchange after December 31, 2026 . the date on which such investment is sold or exchanged, or December 31, 2026 . the lesser of the amount of gain excluded under paragraph (1) or the fair market value of the investment as determined as of the date described in paragraph (1), over the taxpayer’s basis in the investment. Except as otherwise provided in this clause or subsection (c), the taxpayer’s basis in the investment shall be zero. The basis in the investment shall be increased by the amount of gain recognized by reason of subsection (a)(1)(B) with respect to such property. In the case of any investment held for at least 5 years, the basis of such investment shall be increased by an amount equal to 10 percent of the amount of gain deferred by reason of subsection (a)(1)(A). In the case of any investment held by the taxpayer for at least 7 years, in addition to any adjustment made under clause (iii), the basis of such property shall be increased by an amount equal to 5 percent of the amount of gain deferred by reason of subsection (a)(1)(A). In the case of any investment held by the taxpayer for at least 10 years and with respect to which the taxpayer makes an election under this clause, the basis of such property shall be equal to the fair market value of such investment on the date that the investment is sold or exchanged. on the last day of the first 6-month period of the taxable year of the fund, and on the last day of the taxable year of the fund. qualified opportunity zone stock, qualified opportunity zone partnership interest, or qualified opportunity zone business property. such stock is acquired by the qualified opportunity fund after December 31, 2017 , at its original issue (directly or through an underwriter) from the corporation solely in exchange for cash, as of the time such stock was issued, such corporation was a qualified opportunity zone business (or, in the case of a new corporation, such corporation was being organized for purposes of being a qualified opportunity zone business), and during substantially all of the qualified opportunity fund’s holding period for such stock, such corporation qualified as a qualified opportunity zone business. A rule similar to the rule of section 1202(c)(3) shall apply for purposes of this paragraph. such interest is acquired by the qualified opportunity fund after December 31, 2017 , from the partnership solely in exchange for cash, as of the time such interest was acquired, such partnership was a qualified opportunity zone business (or, in the case of a new partnership, such partnership was being organized for purposes of being a qualified opportunity zone business), and during substantially all of the qualified opportunity fund’s holding period for such interest, such partnership qualified as a qualified opportunity zone business. such property was acquired by the qualified opportunity fund by purchase (as defined in section 179(d)(2)) after December 31, 2017 , the original use of such property in the qualified opportunity zone commences with the qualified opportunity fund or the qualified opportunity fund substantially improves the property, and during substantially all of the qualified opportunity fund’s holding period for such property, substantially all of the use of such property was in a qualified opportunity zone. For purposes of subparagraph (A)(ii), property shall be treated as substantially improved by the qualified opportunity fund only if, during any 30-month period beginning after the date of acquisition of such property, additions to basis with respect to such property in the hands of the qualified opportunity fund exceed an amount equal to the adjusted basis of such property (50 percent of such adjusted basis in the case of property in a qualified opportunity zone comprised entirely of a rural area (as defined in subsection (b)(2)(C)(ii)) 1 at the beginning of such 30-month period in the hands of the qualified opportunity fund. 1 So in original. A third closing parenthesis probably should appear. For purposes of subparagraph (A)(i), the related person rule of section 179(d)(2) shall be applied pursuant to paragraph (8) of this subsection 2 in lieu of the application of such rule in section 179(d)(2)(A). 2 So in original. This subsection does not contain a paragraph (8). in which substantially all of the tangible property owned or leased by the taxpayer is qualified opportunity zone business property (determined by substituting “qualified opportunity zone business” for “qualified opportunity fund” each place it appears in paragraph (2)(D)), which satisfies the requirements of paragraphs (2), (4), and (8) of section 1397C(b), and which is not described in section 144(c)(6)(B). 5 years after the date on which such tangible property ceases to be so qualified, or the date on which such tangible property is no longer held by the qualified opportunity zone business. one investment that only includes amounts to which the election under subsection (a) applies, and a separate investment consisting of other amounts, and subsections (a), (b), and (c) shall only apply to the investment described in subparagraph (A)(i). For purposes of this section, persons are related to each other if such persons are described in section 267(b) or 707(b)(1), determined by substituting “20 percent” for “50 percent” each place it occurs in such sections. In the case of a decedent, amounts recognized under this section shall, if not properly includible in the gross income of the decedent, be includible in gross income as provided by section 691. rules for the certification of qualified opportunity funds for the purposes of this section, rules to ensure a qualified opportunity fund has a reasonable period of time to reinvest the return of capital from investments in qualified opportunity zone stock and qualified opportunity zone partnership interests, and to reinvest proceeds received from the sale or disposition of qualified opportunity zone property, and rules to prevent abuse. the amount equal to 90 percent of its aggregate assets, over the aggregate amount of qualified opportunity zone property held by the fund, multiplied by the underpayment rate established under section 6621(a)(2) for such month. In the case that the qualified opportunity fund is a partnership, the penalty imposed by paragraph (1) shall be taken into account proportionately as part of the distributive share of each partner of the partnership. No penalty shall be imposed under this subsection with respect to any failure if it is shown that such failure is due to reasonable cause. Except as otherwise provided in this paragraph, the amendments made by this subsection [amending this section] shall apply to amounts invested in qualified opportunity funds after December 31, 2026 . The amendments made by subparagraphs (A) and (B) of paragraph (4) [amending this section] shall apply to property acquired after December 31, 2026 . The amendment made by paragraph (4)(C) [amending this section] shall take effect on the date of the enactment of this Act [ July 4, 2025 ].”