Can you 1031 into an Opportunity Zone Fund?

[Doug Hancock]

A lot is being written about Opportunity Zones and many small and large investment firms are currently setting up and funding various Opportunity Zone ventures throughout the country.  I have several "management" intensive properties that I would like to liquidate and 1031 those funds into an established Opportunity Zone fund and park those funds capital gains tax free for 10 years.  Question:  Can 1031 exchange funds go into an opportunity zone fund?  Is this something that small time investors are doing or these Opportunity zone funds only for the large institutional money.  Simply, is the "smart" money flowing to these funds or is this just the beginning of another real estate "tulip" mania.  Any small time investors investing in Opportunity zone funds and what has been your experiences?   Thanks in advance for your responses....

[Gaurav Mehta]

@Doug Hancock: You can put your capital gains in an Opportunity Zone fund. Note that you will only defer your taxes till 2026 at which time you will have to pay 85% of the original capital gains tax. So essentially you are saving 15% taxes and deferring them for 7 years.

The appreciation that you see on a property that you buy through the fund will be tax free if you hold the property for 3 more years (total 10). There are more caveats to this like substantial investment has to be made.

To answer your original question, this is a way to replace 1031. In 1031 you defer until you sell but you still have to pay taxes when you sell. In Op Zone, you are limited to 7 years but have to pay 85% of original due taxes.