Opportunity Zones, established under the Tax Cuts and Jobs Act of 2017, are economically distressed communities nominated by states and certified by the U.S. Treasury Department. To encourage investment in Qualified Opportunity Funds that invest in these designated areas, Congress provided several tax incentives related to capital gains.
With approximately $75 billion of deferred gains expected to be recognized, many investors could face significant federal and state tax liabilities in 2026. For investors with charitable inclinations, this presents an excellent opportunity to consider strategic gifting and philanthropic planning before the tax bill comes due.
“With deferred Opportunity Zone gains coming due at year-end, obtaining an independent business valuation is critical for capping recognized gain at actual Fair Market Value and properly structuring tax-mitigating gifts or charitable donations.”
— Bruce A. Johnson, ASA, Marshall & Stevens, National Practice Leader – Gift & Estate Tax
If your income is expected to increase substantially when deferred Opportunity Zone gains are recognized, charitable gifting strategies may help offset some of the resulting tax burden while supporting causes important to you and your family.
Potential strategies include:
Contribute appreciated securities or other assets to a Donor-Advised Fund and receive an immediate charitable deduction while retaining flexibility on the timing of future charitable grants.
A CRT can provide an income stream to you or your beneficiaries while generating a charitable deduction and potentially reducing current tax exposure.
Instead of selling highly appreciated investments and recognizing additional gains, gifting those assets directly to charity can eliminate capital gains tax on the appreciation and create a charitable deduction.
For investors focused on legacy planning, gifting assets to heirs or trusts may help reduce future estate taxes while transferring wealth in a tax-efficient manner.
Many Opportunity Zone investors have benefited from years of tax deferral and, in some cases, a 10% or 15% basis step-up. However, the deferred-gain tax event is now approaching. Waiting until the end of 2026 could limit the number of planning options available and create unnecessary liquidity challenges.
By evaluating charitable and gifting strategies now, investors may be able to:
The Opportunity Zone program continues to offer significant long-term benefits, particularly for investors pursuing the 10-year tax-free appreciation benefit. However, with deferred gains becoming taxable at the end of 2026, now is the time to review your tax exposure and explore gifting strategies that can help mitigate the impact.
A coordinated discussion with your wealth advisor, CPA, and estate planning attorney can help determine which charitable and gifting techniques may be most effective for your situation.
“Under IRS qualified appraisal rules, a properly prepared valuation report substantiates applicable valuation discounts while providing the adequate disclosure necessary to lock in statutory limitations and withstand regulatory audit scrutiny.”
— Bruce A. Johnson, ASA
The Gift & Estate Practice at Marshall & Stevens, led by Bruce Johnson, ASA, is prepared to be a resource for all valuation needs.
