For a 2027 Qualified Opportunity Fund (QOF) investment, the deferred gain is included in 2032 unless an inclusion event comes first, cost segregation deductions start when the fund’s property is placed in service, and their recapture is excluded on a sale of the QOF interest after a 10-year hold, 2037 at the earliest, with the §1400Z-2(c) election.
A sale of the fund’s own assets has a separate election. Every date above moves with the investment date, because for money invested after December 31, 2026 the 2025 One Big Beautiful Bill Act (OBBBA) replaced the program’s single recognition date with a clock that starts when each investor invests: 2032 is the fifth anniversary of a 2027 investment. This post follows one 2027 investment from the day the gain goes in to the thirtieth anniversary, and marks where a cost segregation study does its work along the way: at underwriting, at acquisition for the substantial-improvement test, at placed in service, and at exit. What OZ 2.0 changed in general is in Cost Segregation + Opportunity Zones 2.0, the before-and-after rules a fund CPA maps are in Opportunity Zones 1.0 vs 2.0, and the full interaction is on our Opportunity Zone cost segregation page.
What is known, and not yet known, about investing in an Opportunity Zone in 2027?
The rules for a 2027 investment are in the statute; the map is not yet published. Under OBBBA §70421(c)(5)(A), the amended deferral rules apply to amounts invested in a QOF after December 31, 2026, so the date the money goes in, not the date the gain arose, decides which regime the investment is under. A gain still has to be invested within its 180-day window, so a gain whose 180-day window runs past December 31, 2026 can be invested in 2027 and come under the new rules.
What is settled for money invested after December 31, 2026:
- Deferral. The deferred gain is included at the earlier of an inclusion event or the fifth anniversary of the investment, on the return for the tax year that includes that date (Notice 2026-40, section 4.02).
- Basis step-up. An investment held five years gets a basis increase of 10% of the deferred gain, or 30% in a Qualified Rural Opportunity Fund (the rural Opportunity Zone rules). The seven-year step-up of the original program does not apply.
- The 10-year election. After a 10-year hold, the §1400Z-2(c) election sets the basis of the QOF interest at its fair market value on the date it is sold, or on the thirtieth anniversary of the investment if it is still held then (OBBBA §70421(c)(3)).
- Where new property can qualify. Property a QOF or its qualified opportunity zone business (QOZB) acquires after December 31, 2026 generally counts only if it is acquired for use in a zone designated after July 4, 2025, unless one of the two Notice 2026-40 section 5.01 exceptions applies (what sponsors face if a tract does not make the 2027 map).
What is not yet known. Treasury’s CDFI Fund Opportunity Zones page had announced no 2027 designations when we read it on October 26, 2026. Under Rev. Proc. 2026-14, section 2.02(3)(f), Treasury designates the nominated tracts no later than November 27, 2026, or December 28, 2026 where the governor requested the extension of Treasury’s window, and the new zones run from January 1, 2027 through December 31, 2036 (section 2.02(3)(g)); every date is in the 2027 Opportunity Zone map deadlines. Until Treasury publishes the list, any list of 2027 zones is a forecast.
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What does the timeline of a 2027 Opportunity Zone investment look like?
A 2027 Opportunity Zone investment passes five dates that matter for depreciation, each counted from the investor’s own investment date. The hypothetical below assumes a calendar-year investor who invests eligible gain in a QOF taxed as a partnership on March 1, 2027; the dates follow the statute, and the facts are ours for illustration.
| Date (hypothetical) | What happens | Where cost segregation fits |
|---|---|---|
| March 1, 2027 | Gain invested within its 180-day window; basis in the part of the QOF interest funded with deferred gain starts at zero (§1400Z-2(b)(2)(B)(i)) | An estimate at underwriting sizes the short-life property and the year-one depreciation the investors are being shown |
| 2027 to 2029 | The QOZB acquires or builds; a written working capital plan can cover up to 31 months; an existing building has a 30-month substantial-improvement window | The land and building allocation sets the substantial-improvement bar; the study is completed for the year the property is placed in service |
| March 1, 2032 | Fifth anniversary: 10% basis increase (30% in a Qualified Rural Opportunity Fund), and the deferred gain is included on the 2032 return unless an inclusion event came first | The included gain adds to basis, which in a fund taxed as a partnership can release depreciation suspended under §704(d) |
| March 1, 2037 | Earliest date the investment reaches a 10-year hold | A sale of the QOF interest after this date, with the §1400Z-2(c) election, excludes the gain attributable to the depreciation |
| March 1, 2057 | Thirtieth anniversary: if the interest is still held, the election uses fair market value on this date | Treatment of depreciation taken after this date has no guidance yet |
The same five dates fall one year later for money invested in 2028, and so on. Because each investor’s clock is personal, a fund that closes capital through 2027 carries investors on different 2032 and 2037 dates, which is why the deferral schedule is tracked per investor.
When does a cost segregation study fit into a 2027 Opportunity Zone deal?
A cost segregation study fits a 2027 Opportunity Zone deal at three points: at underwriting as an estimate, at acquisition for the land and building allocation, and in the year the QOZB places the property in service, before the return for that year is filed. The depreciation itself starts in the placed-in-service year, not the investment year, so a fund that invests in 2027 and opens a building in 2029 takes its first depreciation on the 2029 return.
- Acquisition of an existing building. Unless the building qualifies as original-use property, the QOZB must substantially improve it: additions to basis during a 30-month period must exceed the building’s adjusted basis at the start of that period, or 50% of it for property in a zone comprised entirely of a rural area (IRC §1400Z-2(d)(2)(D)(ii)). Land is excluded (Treas. Reg. §1.1400Z2(d)-2(b)(4)(iv)(A) and (E)), so the documented land and building allocation in a cost segregation study sets the number to beat; reclassifying 5-, 7- or 15-year components should not be assumed to lower it (the substantial-improvement test and cost segregation).
- Ground-up construction. The construction contracts, pay applications and invoices that support the working capital plan are the same documents a cost segregation study classifies, so the component schedule can be built while the project is underway and finished when the property is placed in service (ready and available for its intended use).
- Bonus depreciation. 100% bonus depreciation under §168(k) applies to qualified property with a recovery period of 20 years or less acquired after January 19, 2025, or, for self-constructed property, begun after that date, with Notice 2026-11 dating acquisition by the written binding contract (the latest of the dates it was signed, became enforceable, cleared its cancellation period and had its contingencies satisfied) rather than by closing; property acquired or begun earlier stays on the phase-down. The study identifies which components are that property.
Under the automatic change procedures of Rev. Proc. 2015-13 and section 6.01 of Rev. Proc. 2025-23, the missed depreciation is claimed on Form 3115 with no amended returns when the property has been depreciated on two or more filed returns, or on one filed return if the taxpayer placed it in service in the tax year immediately before the year of change (the year of the return the Form 3115 is filed with), and the taxpayer still owned the property at the start of the year of change and meets the other eligibility rules. The stage-by-stage sequence is in the timing playbook for cost segregation in an Opportunity Zone deal.
Can a 2027 investor use the depreciation while the QOF basis is zero?
A 2027 investor can use the depreciation from a cost segregation study during the hold to the extent the investor’s basis supports it, where the fund is taxed as a partnership: the part of the QOF interest funded with deferred gain starts at zero basis under §1400Z-2(b)(2)(B)(i), §704(d) limits each partner’s deductible losses to that partner’s basis, and a partner’s share of partnership liabilities under §752 is one common source of that basis. Where a partner’s basis does not support the loss, the excess is suspended under §704(d), not lost, and it is released as that partner’s basis grows. Allocated income adds basis, and in 2032 the included deferred gain and the five-year basis increase add more. The basis arithmetic is worked through in the zero-basis problem, and the at-risk rules of §465 and the passive-activity rules of §469 still apply after the basis limit.
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How does the 10-year election change depreciation recapture on a 2027 investment?
On a 2027 investment, the depreciation a cost segregation study accelerates is recaptured on a sale before the 10-year hold ends in 2037, and after that hold the recapture is excluded on a sale of the QOF interest where the investor makes the §1400Z-2(c) election, to the extent the election applies, or on the fund’s own asset sale under the separate election described below. The year and the form of the exit therefore decide whether the study was a timing benefit or a permanent one.
- A sale of the QOF interest before the fifth anniversary (before 2032 on a 2027 investment). The sale is an inclusion event, so the deferred gain comes due on that year’s return, and in a fund taxed as a partnership the fund’s built-in recapture reaches the seller as ordinary income under §751(a), with unrecaptured §1250 gain taxed at up to 25% through the look-through rule of Treas. Reg. §1.1(h)-1.
- A sale of the QOF interest between the fifth and tenth anniversaries (2032 to 2037). The deferred gain was already included in 2032, and the sale gets the same §751(a) and look-through treatment, with no basis step-up.
- A sale of property by the fund or its QOZB before the investor’s 10-year hold. The gain is reported on the K-1: §1245 recapture on the reclassified 5- and 7-year property, §1250 ordinary recapture of depreciation taken above straight-line on the 15-year land improvements, and unrecaptured §1250 gain taxed at up to 25% on the building. The asset sale alone is not an inclusion event for the investor while the capital stays in the fund. Whether the study still left a timing benefit depends on the rates at which the deductions were used and the rates at sale (the early-exit math).
- A sale of the QOF interest after the 10-year hold (2037 or later), with the §1400Z-2(c) election made. The basis of the interest steps to fair market value on the date of sale, so the gain on that sale, including the part attributable to depreciation taken during the hold, is excluded to the extent the election applies.
Selling the QOF interest and the fund selling its property are different transactions. For a fund taxed as a partnership or an S corporation, a separate election under Treas. Reg. §1.1400Z2(c)-1(b)(2)(ii) can exclude gain from the fund’s own asset sale, or a lower-tier partnership’s, after the investor’s 10-year hold, when every entity between the fund and the property is taxed as a partnership; the election is made each year on a timely filed return without extensions, the electing investor’s share of sale proceeds the fund keeps is treated as recontributed as an investment that does not qualify (Treas. Reg. §1.1400Z2(c)-1(b)(2)(ii)(B)), and a fund taxed as a C corporation gets no such election (the asset-sale exclusion for 10-year LPs). That regulation was issued under the original statute, and we have found no guidance yet on how it works with the thirty-year rule for money invested after December 31, 2026.
What is still unresolved for a 2027 investment’s exit?
Two exit questions for a 2027 investment have no guidance yet, and both belong in the fund’s documents and the investors’ models as open items rather than assumptions:
- The zone ends before the hold does. A zone designated for 2027 runs through December 31, 2036 (Rev. Proc. 2026-14, section 2.02(3)(g)), before any 2027 investment can reach its 10-year hold in 2037. Treas. Reg. §1.1400Z2(c)-1(c) provides that the election is not impaired solely because a zone’s designation ends, for dispositions before January 1, 2048, and Notice 2026-40 section 5.02(1) restates it in guidance addressed to the zones designated in 2018; we have found no guidance that addresses the zones designated for 2027 or a disposition after 2047.
- Depreciation after the thirtieth anniversary. For an interest still held at its thirtieth anniversary, the amended §1400Z-2(c) fixes basis at fair market value on that date, and how depreciation taken after that date is treated on a later sale has no guidance yet.
What does a sponsor or CPA settle before money goes in during 2027?
Before money goes in during 2027, a sponsor or CPA settles four things: each investor’s investment date, the tract, the exit form and the depreciation estimate.
- The investment date, per investor. It sets the 2032 inclusion year, the 2037 earliest exit and the 2057 anniversary for that investor, and it decides whether the money is under the original rules or OZ 2.0.
- The tract, once Treasury publishes the 2027 designations. Property acquired after December 31, 2026 generally has to be in a zone designated after July 4, 2025, absent a Notice 2026-40 section 5.01 exception.
- The exit form. A sale of the interest and a fund asset sale reach the 10-year exclusion by different elections, so the fund structure (partnership all the way down, or a corporate entity in the chain) is settled before the depreciation is modelled.
- The depreciation estimate. The share of basis in 5-, 7- and 15-year property drives both the year-one deduction and the size of the recapture the 10-year election can exclude, so it is estimated at underwriting and confirmed by the study in the placed-in-service year. Check whether a cost segregation study fits the property, or compare providers in the best cost segregation companies.
Frequently Asked Questions
When is the deferred gain taxed on an Opportunity Zone investment made in 2027?
Deferred gain invested in a Qualified Opportunity Fund in 2027 is included at the earlier of an inclusion event or the fifth anniversary of the investment, so a calendar-year investor who invests in 2027 and does not sell first reports it on the 2032 return (OBBBA §70421(c)(5)(A); Notice 2026-40, section 4.02). An investment held five years also gets a basis increase of 10% of the deferred gain, or 30% in a Qualified Rural Opportunity Fund, which reduces the amount included.
When is a cost segregation study done on a 2027 Opportunity Zone property?
A cost segregation study on a 2027 Opportunity Zone property is completed for the tax year the fund or its QOZB places the property in service, before that year’s return is filed, because depreciation starts in the placed-in-service year rather than the investment year. An estimate at underwriting and the land and building allocation at acquisition come earlier, since the allocation sets the substantial-improvement bar for an existing building.
Is depreciation recaptured if a 2027 Opportunity Zone investment is sold before 2037?
Depreciation recapture applies to a 2027 Opportunity Zone investment sold before its 10-year hold ends in 2037: on a sale of the QOF interest in a fund taxed as a partnership, the fund’s §1245 and §1250 recapture reaches the investor as ordinary income under §751(a), with unrecaptured §1250 gain taxed at up to 25%, and a sale of the interest before the fifth anniversary also brings the deferred gain into income that year. A sale of the property by the fund before then is reported on the K-1 with the same recapture and is not by itself an inclusion event while the capital stays in the fund.
Does the 10-year election exclude cost segregation recapture on a 2027 investment?
After a 10-year hold, an investor who sells the QOF interest and makes the §1400Z-2(c) election excludes the gain on that sale, including the part attributable to cost segregation depreciation, to the extent the election applies; for money invested after December 31, 2026, the basis is fair market value at the earlier of the sale or the thirtieth anniversary of the investment. A sale of the property by the fund is a different transaction with its own election under Treas. Reg. §1.1400Z2(c)-1(b)(2)(ii), available only where the fund is a partnership or an S corporation and every tier below it is a partnership, under a regulation issued for the original statute whose interaction with the thirty-year rule has no guidance yet.
Does a 2026 gain invested in 2027 fall under the OZ 2.0 rules?
A gain realized in 2026 comes under the OZ 2.0 rules when it is invested in a Qualified Opportunity Fund after December 31, 2026 and within its 180-day window, because OBBBA §70421(c)(5)(A) applies the amended rules to amounts invested after that date; the investment date, not the year of the gain, decides the regime. That investment gets the fifth-anniversary inclusion and the five-year basis increase of 10%, or 30% in a Qualified Rural Opportunity Fund, and the cost segregation depreciation on the fund’s property still starts in the year the property is placed in service.
Planning a 2027 Opportunity Zone investment? Estimate the depreciation side on our free calculator, then start your cost segregation study once the property is under contract.
