I have a presentation on this I did for Strafford that's available on the internet. There are several ways to weave in 1202 with Qualified Opportunity Zones (QOZ). You can make the Qualified Opportunity Fund (QOF) itself a Qualified Small Business (QSB), or you can make a Qualified Opportunity Zone Business (QOZB) a QSB. The latter allows you to do a Section 1045 exchange if you'd like to switch investments prior to the 10-year holding period accruing.
There are a few alternatives for combining Section 1202 with Opportunity Zone benefits. An investor can invest directly into a C corporation that will be both a qualified small business under Section 1202 and a qualified opportunity fund. Alternatively, the investor can invest into a partnership, which will be a qualified opportunity fund and hold an interest in a C corporation that will be the qualified small business under Section 1202 and a qualified opportunity zone business. Either structure should give the investor the ability to defer/exclude invested gain under the opportunity zone rules and exclude future appreciation from a disposition of the qualified small business stock after five years (and not 10 years), under Code Section 1202.
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