Should I do a 1031 exchange or an opportunity zone investment?

The Tax Cuts and Jobs Act (TCIA) created a new investment called Opportunity Zone on December 22, 2017.  This investment encourages taxpayers to invest capital through private investments in businesses and real estate in distressed communities to spur economic development.  Here is a link of FAQ from the IRS website:

https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions

Should I do a 1031 exchange or an Opportunity Zone investment?  Below is a chart comparing a 1031 Exchange verses investing in an Opportunity Zone.  Both are tax- deferred strategies that have their own separate requirements and benefits.  We would strongly encourage you to discuss both strategies with your tax advisor to determine which course of action would best suit your needs and objectives.

Comparison of a 1031 Exchange to an Opportunity Zone

1031 Exchange Opportunity Zone
Only business or investment use real property qualifies Allows for any type of investment that has a capital gain
No time restrictions as long as ‘held for investment’ Investment time restrictions 5, 7, 10 years
Tax deferral and possible tax exclusion with proper planning Tax deferral and possible tax exclusion after 10 years
Any US investment or business use real property Limited to Qualified Opportunity Zones
Must purchase within 180 calendar days Must purchase within 180 calendar days
Must purchase replacement asset for equal or greater value to defer capital gains May purchase replacement asset with taxable gain proceeds only
May invest in any real property Must invest through a Qualified Opportunity Fund (OF)
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