Deferring capital gains taxes is the top benefit of the opportunity zone model—but it isn't alone. In fact, 1031 exchanges are a far more familiar concept for most investors, and exchange transactions also allow investors to defer capital gains taxes. For that reason, many real estate owners will likely opt for a 1031 exchange to defer capital gains taxes rather than an opportunity zone—which has more regulations. However, opportunity zones make more sense for some investors.

First, investors should focus on an optimization strategy for investment into a QOZ fund. "This is best suited for an investor who has capital gains generated from an asset or securities sale, like stock market gains or the sale of a business, that are typically not eligible for a traditional like-kind 1031 exchange," Braden Crockett, VP and director of opportunity zones at Matthews Real Estate Investment Services, tells GlobeSt.com. "Essentially, gains that would be otherwise subject to taxation unless committed to this OZ program."

Some investors might not be familiar with real estate model, but that doesn't mean the can't invest in the space. "Most investors who prefer passivity also lack access to private OZ investment opportunities or don't feel comfortable questioning their friend's assumptions on this new development deal they are raising capital for," adds Crockett. "Investing alongside a tried and true sponsor at scale optimizes the probability of success. It will take a little research to find funds that are currently actively fundraising funds, but NCSHA's directory is a good starting point for research."

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Kelsi Maree Borland

Kelsi Maree Borland is a freelance journalist and magazine writer based in Los Angeles, California. For more than 5 years, she has extensively reported on the commercial real estate industry, covering major deals across all commercial asset classes, investment strategy and capital markets trends, market commentary, economic trends and new technologies disrupting and revolutionizing the industry. Her work appears daily on GlobeSt.com and regularly in Real Estate Forum Magazine. As a magazine writer, she covers lifestyle and travel trends. Her work has appeared in Angeleno, Los Angeles Magazine, Travel and Leisure and more.