What is the difference between a 1031 exchange and a Qualified Opportunity Zone (QOZ) investment?
A 1031 exchange and a QOZ investment both offer tax benefits but differ in eligibility, investment flexibility and long-term tax treatment.
| 1031 Exchange | QOZ Investment | |
| Eligible gains | Only from real estate sales | Any capital gains (stocks, business, real estate, etc.) |
| Investment type | Must reinvest in like-kind real estate | Must invest in QOZ business or real estate |
| Reinvestment timeline | 45 days to identify, 180 days to close | 180 days to invest; extensions available for K-1 gains |
| Deferral period | Indefinite through multiple exchanges or 721 UPREIT | Until Dec. 31, 2026, then original gain is realized |
| Tax on appreciation | Owed upon final sale | 100% tax-free after 10 years |
| Estate planning | Heirs receive a stepped-up basis, eliminating capital gains tax | Deferred capital gains must be paid, but appreciation is tax-free after 10 years |
For a comprehensive explanation, read our article: Qualified Opportunity Zones vs. 1031 Exchanges