In an interview with ADISA board member Greg Mausz, Jay Frank, the president of Cantor Fitzgerald Asset Management, explains the key differences between opportunity zones and 1031s.

According to Frank, opportunity zones, on the surface were created around five years ago under the 2017 Tax Cuts and Jobs Act under the Trump administration. The program is trying to encourage investment that creates economic development in lower income areas. You can take capital gain dollars on the sale of any asset, short term or long term, and invest them in lower income areas.

In contrast, regarding 1031’s, if one sells an investment property, they have to take their entire, proceeds of the sale, basis and gain, to be exchanged into replacement property to defer 100% of the tax liability.

However, for opportunity zone only, the gain needs to be, or is eligible, for investment.

“1031 exchange tends to be preferred for someone that's looking for current income right away,” said Frank. “Where an opportunity zone might generate income, but it might take a few years to get there because you're building buildings. You know, until those buildings are built and stabilized in generating cash flow, an OZ's not going to generate income.”

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