Beyond traditional 1031 investing: Options for deferring taxes without buying another rental property.
By Richard Gann, JD
Managing Partner, 1031 Capital Solutions
Qualified Opportunity Zone (QOZ) Funds
A Qualified Opportunity Zone (QOZ) Fund is an investment vehicle created under the Tax Cuts and Jobs Act of 2017 to encourage long-term investments in economically distressed communities. These funds provide investors with substantial tax incentives while promoting economic development in designated Opportunity Zones, which are typically low-income areas selected by state governments and certified by the U.S. Treasury Department.
How QOZ Fund Tax Benefits Work
Investors can defer capital gains taxes by reinvesting the gains from the sale of stocks, businesses, or real estate into a Qualified Opportunity Zone Fund (QOF) within 180 days. Unlike 1031 exchanges, QOZ funds only require that a taxpayer reinvest their gains, not the entire sales proceeds. Investors’ original capital gains taxes are deferred until their 2026 tax payment (typically Spring 2027). If the investment is held for 10 years or more, investors also pay zero capital gains tax on the gains derived from their QOZ investments.
Benefits and Risks
QOFs, which are development funds, may have greater potential for appreciation than other buy-and-hold real estate investments. However, QOFs require a long-term commitment and involve market risks tied to the economic performance of the designated zones. There may be little or no income generated by the fund for several years, and real estate development presents much higher risk of capital than more conservative buy-and-hold real estate strategies.
Investors should carefully evaluate fund structures, project feasibility, and regulatory compliance before investing in a QOF. Consulting a financial advisor like 1031 Capital Solutions—and a tax professional—is highly recommended.
QOZ Tax Law Updates
As of March 2025, the tax deferral provisions under the Qualified Opportunity Zone (QOZ) program are legislatively set to expire on December 31, 2026. This means that taxpayers who have invested in QOFs are required to recognize their deferred capital gains as taxable income by that date.
In recent years, bipartisan efforts have been made to extend these tax incentives. Notably, legislation was introduced in the 117th Congress to prolong the deferral period, but it did not advance. The proposal was reintroduced in the 118th Congress, which is currently in session, but as of now, it remains pending without enactment.
Given the current legislative landscape, the likelihood of Congress extending the QOZ tax deferral provisions beyond 2026 is uncertain. While there is ongoing discussion and some legislative proposals aiming to extend these benefits, no definitive action has been taken to date. Investors should stay informed about legislative developments and consult with tax professionals to navigate potential changes to the QOZ program.
Will Trump Save Opportunity Zones In 2025?
In this webinar, Jimmy Atkinson details how Congress and President Trump will work together to both extend and renew the Opportunity Zone tax incentive in 2025… before it’s too late, including eight new ideas that are being considered to improve the OZ legislation.
1031-Qualified Fractional Mineral Rights Interests
Investing in fractional mineral rights interests allows individuals to own a portion of the subsurface resources of a property, such as oil, gas, coal, or precious metals. Unlike traditional real estate, mineral rights ownership provides income potential through royalty payments when resources are extracted by energy companies.
How Fractional Mineral Rights Work
Fractional ownership means multiple investors share rights to the minerals beneath a property. These rights are often leased to companies that extract resources, providing passive income in the form of royalties. Since these rights can be bought and sold separately from the land, investors can diversify portfolios without owning physical real estate.
Benefits and Risks
- Passive Income: Earn royalties without active management
- Inflation Hedge: Commodity prices often rise with inflation
- Diversification: Non-correlated asset class for investors
- Market Volatility: Prices depend on global demand for resources
- Legal Complexity: Ownership verification and lease agreements require due diligence
- Environmental Regulations: Policy changes may impact extraction
Getting Started
Investors can acquire 1031-qualified fractional mineral rights through qualified brokerage firms like 1031 Capital Solutions, that offer syndicated programs designed for 1031-exchange investors. Due diligence is critical to making informed decisions. Consulting a qualified tax professional or attorney can help ensure IRS compliance and mitigate risks.
“Pre-REIT” Exchange Investments: Combining IRC 1031 and IRC 721
IRC Sec. 1031 allows investors to defer the payment of capital gains taxes when selling investment property and exchanging into other qualified investment property. IRC Sec. 721allows investors to transfer their interests in a property to the operating partnership (“OP”) of a REIT. Some sponsors of 1031 DST programs have combined these two tax advantages into one strategy, creating an opportunity to exchange today into a “Pre-REIT” property, ultimately with the intention of owning OP units with enhanced redemption options.
How Pre-REIT Exchange Investments Work
- Investor sells a rental property and exchanges it for interests in a 1031 DST property
- The 1031 DST sponsor is affiliated with a public REIT; property often is already part of the REIT portfolio
- The investment period in the 1031 DST is typically two to three years
- Thereafter, the DST shares are exchanged for units in the OP of a non-traded REIT
- OP distributions mirror REIT distributions; investor receives a Schedule k-1
- Depending on the REIT, units may be redeemed by the REIT or sold on an exchange
- Alternatively, investors may hold their OP units until death and benefit from a step-up in basis
Benefits and Risks
Most non-traded REITs with “pre-REIT” exchange options are large, institutional portfolios offering diversity across various sectors, lease durations and geographies. Net asset values(NAVs) are calculated daily but are based on the actual underlying real estate values, rather than a constantly fluctuating stock price. After a one-year hold, healthy non-traded REITs typically offer redemptions capped quarterly (usually 5% of NAV).
No secondary market exists for DSTs, there is no guarantee of principal or income, and the REIT redemption program may be suspended. There is no guarantee that a REIT will exercise its option to purchase its pre-REIT DST. All macroeconomic and financial market risks apply to real estate investments, regardless of the investment vehicle and structure.
To learn more about these and other tax-driven real estate investments, contact Richard Gann at 1031 Capital Solutions 800-445-5908
Disclaimer: The inclusion of any links to third-party websites in this article is provided solely for informational purposes. Richard Gann and 1031 Capital Solutions are not responsible for the content, accuracy, or availability of these external sites, nor do they endorse or have any affiliation with those sites.
About the author:
Richard (Rick) Gann is a graduate of UCLA and California Western School of Law. He has been a member of the State Bar since 1997. Before transitioning to financial services, Rick practiced law for nine years in the fields of real-estate taxation and estate planning. Rick proudly helped numerous clients manage taxes on their real-estate holdings and investments. Rick’s inspiration for helping property owners came from his grandfather, Paul Gann, author of California’s Proposition 13, which lowered property taxes and sparked a nationwide movement of fiscal conservatism.
The contents of this article are for informational purposes only and do not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers are only made through the sponsors Private Placement Memorandum (PPM) which is solely available to accredited investors and accredited entities.
There are material risks associated with investing in real estate securities and 1031replacement properties such as Delaware Statutory Trusts (“DSTs”) and Real Estate Investment Trusts (“REITs”), including liquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of newsupply coming to market and softening rental rates, general risks of owning/operatingcommercial and multifamily properties, short term leases associated with multi-familyproperties, financing risks, potential adverse tax consequences, general economic risks, development risks, long hold periods, and potential loss of the entire investment principal.
There are material risks associated with investing in Qualified Opportunity Zone Funds (“QOFs”), including changes in national and local economic conditions, changes in the investment climate for real estate investments, changes in the demand for or supply of competing properties, changes in local market conditions and neighborhood characteristics, the availability and cost of mortgage funds, the obligation to meet fixed and maturing obligations (if any), changes in real estate tax rates and other operating expenses, changes in governmental rules and fiscal policies, and changes in zoning and other land use regulations, environmental controls, among other factors.
There are material risks associated with investing in mineral rights interests, including the risk that wells will not provide enough revenue to return the amount of your investment. The
revenues are directly related to the productivity of the underlying wells, which is volatile and cannot be predicted. Further, if oil and/or gas prices decrease, then your investment return may decrease even if production increases. There is a very limited secondary market for fractional mineral rights interests.
Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services offered through Concorde Asset Management, LLC (CAM), an SEC registered investment adviser. 1031 Capital Solutions is independent of CIS and CA
