2025 Filing Season Alert: Dues On Opportunity Zone Deferred Gains Are Coming

Sharon Kreider, CPA & Karen Brosi, CFP, EA

Here’s something worth putting on your radar as you work through 2025 returns: some of your clients may be sitting on a tax liability they haven’t thought about in years.

Taxpayers who rolled capital gains into a Qualified Opportunity Fund under the Tax Cuts and Jobs Act were able to defer recognition of those gains — but not forever. The statutory deadline is December 31, 2026. For clients who made those investments back in 2019 or 2020, that recognition date is approaching fast – just one tax year away.

In the early years of the program, investors frequently contributed substantial gains from stock sales, business exits, and real estate transactions into Opportunity Zone funds. Those investments were often tied to long-term development projects, and over time they quietly disappeared from the front of mind for many clients. The gain didn’t disappear. It was deferred, not forgiven.

Check Your Client’s Reporting Trail Now, Not Later

Investors who elected deferral should have been filing Form 8997 each year, with the original gain reported on Form 8949. In practice, that history isn’t always clean – particularly when the engagement has changed hands or the investment is managed outside the tax relationship. The 2025 return is a good time to verify the deferred gain amount and confirm the reporting has been consistent before recognition arrives.

It’s time to warn your clients that deferred gains are going to show up on their 2026 returns whether or not the investment has generated any cash. For those who deferred significant gains years ago, the resulting liability could be substantial – and the surprise factor tends to make it worse.

The long-term upside of the program is still real. Investors who hold their Qualified Opportunity Fund interest for at least ten years can elect to step up their basis to fair market value at sale, effectively excluding any post-investment appreciation from capital gains. But that benefit applies only to the growth. The original deferred gain still gets recognized in 2026, regardless of holding period.

We’re at the point in the Opportunity Zone story where the deferral chapter is closing. This filing season is the right time to identify affected clients and schedule an appointment after April 15 to calculate the tax that will be due on their 2026 deferred gains. The sooner they understand the number, the more options they have to gather up the money.

Need a refresher on how the deferred gains are taxed? See IRS’s Opportunity zones frequently asked questions.