How does qof work?

A Qualified Opportunity Fund (QOF) works by pooling investor capital, typically deferred capital gains, into a partnership or corporation that must hold at least 90% of its assets in qualifying property located in a designated Qualified Opportunity Zone. In exchange for reinvesting a capital gain into the fund within the required timeframe, an investor receives an LP or equity interest and the ability to defer, and in some cases reduce, tax on that original gain under IRC 1400Z-2.

The fund itself typically invests in real estate, operating businesses, or other qualifying property within the zone, and its performance flows through to the value of each investor's LP interest. Because these interests are illiquid, often held by a small group of partners, and carry no public market, valuing them requires more than a simple pro-rata share of reported fund assets. A defensible valuation accounts for minority interest discounts (DLOC) and lack of marketability (DLOM), and reflects the fund's actual assets and performance rather than a book-value estimate.

Timing matters as much as structure. Investors who held their QOF interest before December 31, 2019 face a mandatory inclusion event on December 31, 2026, when the deferred gain must be recognized whether or not the interest has been sold. A current fair market value valuation of the LP interest is what allows that gain to be calculated correctly, and the same type of valuation supports fund audits, transfers, gifts, and partner disputes over capital account value.

QOF Valuation Group prepares these valuations in accordance with USPAP and Rev. Rul. 59-60. For more on the underlying program, see our answers on what qualifies as an Opportunity Zone and what happens to Opportunity Zones after 2026.