Table of Contents
Explore OZ Investment Opportunities
Contact Skyline Properties for exclusive Opportunity Zone development and acquisition opportunities.
1. What Are Opportunity Zones
Opportunity Zones were created by the Tax Cuts and Jobs Act of 2017 (TCJA) to stimulate private investment in economically distressed communities. The program designates specific census tracts -- nominated by state governors and certified by the U.S. Treasury -- where qualifying investments receive preferential tax treatment.
The program was designed to channel the estimated $6 trillion in unrealized capital gains held by U.S. investors into communities that need economic development. Unlike other tax incentive programs, OZs are uniquely market-driven -- there is no cap on the amount of capital that can be deployed, no application or approval process for the tax benefits, and investors have broad flexibility in how they deploy capital within the zones.
How the Program Works
- Investor realizes a capital gain from the sale of stocks, real estate, businesses, or other assets
- Within 180 days, invests the gain into a Qualified Opportunity Fund (QOF)
- The QOF deploys capital into qualified opportunity zone property or businesses
- The original capital gain is deferred; any new appreciation is tax-free after 10 years
- Only the capital gain amount needs to be invested (not total sale proceeds, unlike 1031 exchanges)
2. Tax Benefits & Holding Period Requirements
The OZ program provides three distinct tax benefits, each tied to the investor's holding period. Understanding these tiers is essential for structuring investments and projecting after-tax returns.
Capital Gains Deferral
The original capital gain invested into a QOF is deferred until the earlier of: (a) December 31, 2026, or (b) the date the QOF investment is sold or exchanged. This provides immediate tax deferral and frees up capital that would otherwise go to taxes. Note: the deferred gain is ultimately taxable -- it is not eliminated.
Basis Step-Up (For Early Investors)
Investors who made QOF investments before December 31, 2019 received a 10% basis step-up after 5 years, and those who invested before December 31, 2021 were eligible for a 15% step-up after 7 years. These deadlines have passed for new investments, but the deferral and 10-year exclusion benefits remain fully available.
Permanent Exclusion of New Gains (10-Year Hold)
This is the most powerful benefit. If the QOF investment is held for at least 10 years, all appreciation on the OZ investment is permanently excluded from federal income tax. For a real estate development in a high-growth NYC neighborhood, this can represent millions of dollars in tax savings on the profit generated by the project.
Example: OZ Tax Benefit Illustration
An investor realizes a $5M capital gain and invests it into a QOF that develops a multifamily building in a Brooklyn Opportunity Zone:
- Year 0: $5M gain deferred -- no tax due at time of investment
- Year 2 (2026): Original $5M gain becomes taxable (deferral ends Dec 31, 2026)
- Year 10+: Property has appreciated to $12M. The $7M in new appreciation is 100% tax-free
- Tax Savings: At a 23.8% federal rate, the 10-year exclusion saves ~$1.67M in federal taxes on the appreciation
3. Qualified Opportunity Fund Structure
A Qualified Opportunity Fund (QOF) is the investment vehicle through which capital gains are deployed into Opportunity Zones. Understanding the structural and compliance requirements is critical for both fund sponsors and investors.
QOF Requirements
- • Organized as a corporation or partnership (including LLCs taxed as partnerships)
- • Self-certifies as a QOF by filing IRS Form 8996
- • Must hold at least 90% of assets in qualified OZ property
- • Tested semi-annually on the 90% asset test
- • No cap on fund size or number of investors
Qualified OZ Property
- • Tangible property acquired by purchase after Dec 31, 2017
- • Original use must begin with the QOF, OR the property must be substantially improved
- • Substantial improvement = doubling the basis within 30 months
- • Land value excluded from the substantial improvement test
- • 70% of tangible property must be in OZ (for QOZ businesses)
The Substantial Improvement Rule
For existing properties (not new construction), the QOF must substantially improve the building by investing an amount equal to or greater than the adjusted basis of the building (excluding land) within 30 months. This is the most commonly applied rule in NYC where most OZ investments involve existing structures.
- Purchase a building for $10M total ($3M land + $7M building basis)
- Must invest at least $7M in improvements within 30 months
- Land value is excluded, which significantly benefits high-land-value NYC properties
4. NYC Opportunity Zone Map & Top Investment Areas
New York City has 306 designated Opportunity Zones across all five boroughs, representing one of the densest concentrations of OZ census tracts in the United States. These zones encompass many of the city's most dynamic emerging neighborhoods where development activity, infrastructure investment, and demographic shifts are driving appreciation.
Brooklyn
Brooklyn has the highest concentration of OZ investment activity in NYC. Key zones include Downtown Brooklyn (office-to-residential conversions and new mixed-use towers), East New York (rezoned for significant residential growth), Sunset Park (industrial-to-commercial conversions and the Industry City corridor), and Bedford-Stuyvesant / Crown Heights(multifamily development and mixed-use infill).
Queens
Long Island City is the flagship Queens OZ, with billions in development spanning luxury residential, commercial, and life science projects. Astoria offers multifamily and mixed-use opportunities along transit corridors. Jamaica / Southeast Queens is benefiting from transit improvements and affordable housing demand, while Far Rockaway presents waterfront development potential.
The Bronx
The South Bronx -- particularly Mott Haven and Port Morris -- has emerged as one of the most active OZ investment markets in the city. Waterfront sites along the Harlem River are attracting large-scale mixed-use development, while the neighborhood's improving transportation links, growing restaurant scene, and proximity to Manhattan make it compelling for residential and commercial investors alike.
Manhattan
Manhattan OZ tracts are concentrated in East Harlem, Washington Heights / Inwood, and parts of the Lower East Side. East Harlem is seeing significant multifamily development driven by the 2017 rezoning and strong demographic trends. Washington Heights offers value-add multifamily and mixed-use opportunities at price points well below Midtown.
Staten Island
Staten Island OZ tracts are concentrated along the North Shore, particularly around St. George and Stapleton, where the Empire Outlets development and NYC Ferry service have catalyzed investment. These zones offer lower entry points and development opportunities in retail, hospitality, and mixed-use residential.
5. OZ Investment Strategies for NYC Real Estate
NYC's Opportunity Zones span diverse neighborhoods and property types, enabling a range of investment strategies. The most successful OZ investors align their strategy with both the tax benefits and the underlying real estate fundamentals.
Ground-Up Multifamily Development
New construction on vacant or underutilized OZ parcels. This strategy automatically satisfies the "original use" test and pairs strong tax benefits with NYC's insatiable housing demand. Most active in Brooklyn, the Bronx, and Queens where zoning supports density.
Substantial Rehabilitation
Acquiring existing buildings and investing more than the building basis in renovations within 30 months. Ideal for older multifamily or commercial buildings in transitioning neighborhoods. The land exclusion makes this especially attractive in high-land-value NYC locations.
Mixed-Use Development
Projects combining residential, retail, and community facility space. These developments benefit from diversified income streams and often qualify for additional incentives like Affordable Housing tax credits, creating multiple layers of tax-advantaged returns.
Industrial / Life Science Conversion
Converting obsolete industrial or warehouse properties into modern distribution, last-mile logistics, or life science facilities. Active in Sunset Park, Long Island City, and the South Bronx. These conversions typically exceed the substantial improvement threshold while tapping into high-growth sectors.
Skyline Properties identifies and sources Opportunity Zone investment opportunities across NYC's five boroughs. Robert Khodadadian works with investors, developers, and fund sponsors to structure transactions that maximize both tax benefits and real estate returns.
6. Risks & Considerations
While the tax benefits are compelling, OZ investments carry risks that investors must carefully evaluate. The tax tail should never wag the investment dog -- the underlying real estate fundamentals must support the investment thesis independent of tax incentives.
- •10-Year Lock-Up: The primary tax benefit requires a 10-year hold, limiting liquidity and exposing investors to market cycle risk
- •2026 Deferral Expiration: The deferred gain becomes taxable no later than December 31, 2026, regardless of whether the investment has been sold
- •Compliance Complexity: QOF compliance requirements including the 90% asset test, substantial improvement timelines, and reporting obligations add operational complexity
- •Legislative Risk: The OZ program could be modified or eliminated by future legislation; current rules may not persist through a 10-year hold period
- •Location Risk: Not all OZ census tracts are equal -- some designated zones lack the infrastructure, transportation, or demand drivers to support appreciation over 10 years
Best Practice: Evaluate every OZ investment on its real estate merits first. The tax benefits should enhance a fundamentally sound deal, not justify an otherwise mediocre one. Work with experienced tax counsel and real estate advisors who understand both the regulatory framework and the local market dynamics.
7. Frequently Asked Questions
Can I still invest in Opportunity Zones in 2025?
Yes. The OZ program remains active and investments can still be made. While the 5-year and 7-year basis step-up deadlines have passed, the most powerful benefit -- permanent exclusion of appreciation after 10 years -- is still available for new investments. The capital gains deferral benefit also remains, though the deferred gain will be recognized no later than December 31, 2026, which reduces the deferral period for new investments.
Do I have to invest all my capital gains into an OZ fund?
No. Unlike a 1031 exchange, which requires reinvesting all proceeds, OZ investors can choose how much of their capital gain to invest. You can invest any portion of the gain and pay tax on the remainder. Additionally, you only need to invest the gain amount -- not the total sale proceeds -- making OZs more flexible than 1031 exchanges in terms of capital deployment.
How do OZ benefits compare to 1031 exchanges?
OZs and 1031 exchanges serve different purposes and can complement each other. 1031 exchanges defer 100% of the gain indefinitely but require reinvesting all proceeds into like-kind real estate within strict timelines. OZs provide a partial deferral (through 2026) plus permanent exclusion of new appreciation after 10 years, but the original gain is ultimately taxed. OZs accept gains from any source (stocks, crypto, businesses), while 1031s are limited to real property.
What happens if I sell my OZ investment before 10 years?
If you sell before the 10-year mark, you lose the permanent exclusion benefit on the appreciation. The deferred capital gain would be recognized (if not already recognized in 2026), and any appreciation on the OZ investment itself would be taxed as a capital gain. While early exit forfeits the primary tax benefit, investors still receive the time value of the deferral on the original gain.