A 1031 exchange into a Delaware statutory trust (DST) and an investment in a Qualified Opportunity Fund (QOF) both defer tax on a gain, but they work on different property, different amounts and different clocks. As of October 2026, a DST can defer the entire gain on real estate indefinitely if the exchange rules are met; an OZ 2.0 investment defers only the gain, from almost any capital asset, for up to 5 years, and can exclude later appreciation after 10 years. This page compares the rules as written; it does not recommend either.
Here, OZ 2.0 means a QOF investment made after December 31, 2026. An investment made through that date (OZ 1.0) has its deferral end no later than the 2026 tax year.
The rules side by side
| Rule | 1031 exchange into a DST | QOF investment (OZ 2.0) |
|---|---|---|
| What gain qualifies | Gain on real property held for productive use in a business or for investment, exchanged for like-kind real property; not property held primarily for sale (IRC 1031(a)(1)–(2)) | Eligible gain: capital gain or qualified section 1231 gain from a sale to an unrelated person; not gain recharacterized as ordinary, such as depreciation recapture |
| What must be reinvested | Proceeds; cash or other property received is taxed up to the gain (1031(b)) | Only the gain, and part of it may be deferred |
| Deadline | Identify within 45 days; receive by the earlier of 180 days or the return due date with extensions (1031(a)(3)) | Invest within 180 days, generally from the date the gain would be recognized |
| How long tax is deferred | Until the replacement property is sold in a taxable sale; no fixed end | Until the earlier of a sale or 5 years after the investment |
| Reduction of the deferred gain | None | Basis rises by 10 percent of the deferred gain at 5 years (30 percent in a Qualified Rural Opportunity Fund) |
| Basis | Carries over from the property given up, adjusted for cash and gain recognized (1031(d)) | Starts at zero |
| Later appreciation | Taxed on a taxable sale | Held 10 years or more, basis can equal fair market value at sale if sold before the 30th anniversary, so appreciation is not taxed |
| What the vehicle may do | Under Rev. Rul. 2004-86, the trustee cannot take new contributions, renegotiate the lease or acquisition debt, or buy other property, and may make only minor non-structural changes | The fund must hold at least 90 percent of assets in Opportunity Zone property, and existing buildings must be substantially improved within 30 months |
| Foreign property | U.S. and foreign real property are not like kind (1031(h)) | Property must be in a designated U.S. Opportunity Zone |
How a DST qualifies for 1031
Section 1031, as now written, covers only real property. A beneficial interest in a trust is ordinarily not real property, so a DST works for 1031 only because of how the IRS classifies it. In Rev. Rul. 2004-86 (2004-33 I.R.B., read October 30, 2026), the IRS concluded that a DST with the facts described is an investment trust, its owners are treated as grantors owning undivided fractional interests in the real estate, and a taxpayer may exchange real property for an interest in it "without recognition of gain or loss under § 1031, if the other requirements of § 1031 are satisfied."
That classification depends on the trustee having no power to vary the investment. In the ruling's facts, the trustee cannot accept additional contributions, cannot exchange the property or buy other assets beyond short-term investments, cannot renegotiate the acquisition debt or the lease (except in a tenant bankruptcy), may make only minor non-structural modifications unless required by law, must distribute available cash quarterly, and may hold reserves only in short-term government obligations or certain bank deposits. The ruling notes that a power to refinance the debt is the kind of added power that would make the trust a business entity instead.
Hypothetical: the same gain, two paths
Hypothetical example
Suppose an investor sells an investment property for $2,000,000 with an adjusted basis of $1,400,000, a $600,000 gain. Assume, for illustration only, that the whole gain is eligible capital gain, the sale is to an unrelated buyer, there is no debt on the property, and the sale closes on February 1, 2027.
- 1031 into a DST. To defer the whole $600,000, the investor exchanges the full $2,000,000 into replacement property (here, DST interests), identifies it within 45 days and receives it within 180 days. If the investor kept $300,000 of cash, that cash would be taxed up to the gain, so $300,000 of gain would be recognized. The DST interests carry over the old basis.
- QOF. To defer the whole $600,000, the investor invests $600,000 in a QOF within 180 days. The other $1,400,000, the return of basis, is not part of the deferral. If the investment is made in March 2027 and held, the deferred gain is included in the investor's 2032 tax year, the year that includes the 5-year date, reduced by the 10 percent step-up: $540,000 is included, assuming the fund interest is worth at least $600,000 then. If held 10 years, the investor can elect a basis equal to fair market value at sale, so growth on the $600,000 is not taxed, if sold before the 30th anniversary.
Neither path is free: the DST defers more gain for longer but keeps it all; the QOF defers less and ends sooner, but reduces the deferred gain and can exclude growth.
Can the two be combined?
They apply to different things, so in some cases both are in play. Gain a 1031 exchange does not shelter, such as gain recognized because cash was received, is recognized gain. If it is capital gain or qualified section 1231 gain, and not depreciation recapture, it can be eligible gain for a QOF within its own 180-day window. When that window starts in a deferred exchange, and how much of the gain is recapture, are questions for a tax adviser.
Other differences worth checking
- Timing around January 1, 2027. A QOF investment made through December 31, 2026 is OZ 1.0, with its deferral ending no later than the 2026 tax year. Eligible gain invested on or after January 1, 2027 within its window is OZ 2.0.
- Death. A transfer of a QOF interest because of the investor's death is generally not an inclusion event, but any deferred gain not included on the decedent's return is taxed under the income-in-respect-of-a-decedent rules of IRC 691.
- State tax. States treat OZ deferral differently; North Carolina, for example, has decoupled from it. See state tax conformity.
- Cash to pay the tax. In OZ 2.0 the year-5 tax is owed whether or not the fund distributes cash.
Next steps
Run the numbers in the OZ tax benefit calculator and check the window in the 180-day deadline calculator. For the third option, see OZ vs. paying the tax now, and for the older comparison on this site, OZ vs. 1031 exchanges.
Janover Capital LLC publishes this reference. It is not a broker-dealer, investment adviser or tax preparer and does not offer, sell or recommend DST interests or QOF interests. Sign up for alerts to get notice of new OZ guidance.
Common questions
What is the difference between an Opportunity Zone fund and a DST?
A DST used in a 1031 exchange holds real estate, and Rev. Rul. 2004-86 treats an interest in a properly structured DST as an interest in that real estate, so a real property owner can exchange into it and defer the whole gain. A Qualified Opportunity Fund takes only the gain portion of a sale, from almost any capital asset, defers it for up to 5 years under OZ 2.0, and can exclude later appreciation if held 10 years.
Do I have to reinvest all my sale proceeds in a 1031 exchange?
To defer all the gain, generally yes. Under IRC 1031(b), cash or other property received in an otherwise qualifying exchange is taxed up to the amount of the gain. In an Opportunity Zone investment, only the gain needs to be invested, and you can invest part of it.
Can I use an Opportunity Zone fund for gain from selling stock?
Yes, if it is eligible gain, meaning capital gain or qualified section 1231 gain. A 1031 exchange applies only to real property held for productive use in a business or for investment, so stock gains cannot use it.
What are the deadlines for a 1031 exchange vs. an Opportunity Zone investment?
For a 1031 exchange, replacement property must be identified within 45 days of the transfer and received by the earlier of 180 days or the return due date, including extensions. For an Opportunity Zone investment, the gain must be invested in a fund within 180 days, generally starting on the date the gain would be recognized.
Which is better, a DST or an Opportunity Zone fund?
This site does not recommend either. The answer depends on the gain's source and size, the investor's holding period, cash needs, state tax rules and the specific offering. The rules on this page are a starting point for that conversation with a tax adviser.