Both a Qualified Opportunity Fund (QOF) and a 1031 exchange allow a taxpayer to defer realized capital gain. The additional tax benefits from a QOF are that a taxpayer can also generally exclude (i) 10% or 15% of such deferred gain, if he holds the QOF interest for at least 5 or 7 years, respectively, prior to Dec. 31, 2026 and (ii) gain from future appreciation in his or her QOF interest, if he holds the interest for at least 10 years.
There are several differences, but the main one is that you do not need to invest the whole amount of proceeds or gain to obtain Opportunity Zone benefits.
There are pros and cons, or you could actually combine the two. The list is quite long and there are several publications available that can delineate the specifics. I did a presentation on this topic for the Federation of Exchange Accommodators. Here's the bottom line the way I see it: if the real estate you're selling is leveraged, you are better off with 1031, which allows for boot netting. But for high-basis, low-leverage property, QOZ is probably better. There are many other factors to consider, though, and you should work through this with qualified advisors.
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