What is the 10 year rule for QOZ?

The 10-year rule lets a Qualified Opportunity Fund investor eliminate federal capital gains tax on the appreciation of their QOF interest, provided the interest is held for at least 10 years before it is sold or exchanged.

Here's how it works in practice: once an investor has held a QOF investment for 10 years or longer, they can elect to step up the basis of that interest to its fair market value on the date of sale or exchange. That election, made on the federal return for the year of the sale, means any appreciation earned inside the fund since the original investment is excluded from federal tax. It's important to keep this separate from the deferred gain that was originally rolled into the QOF: that gain follows its own recognition timeline (including the December 31, 2026 inclusion event for pre-2020 investments) and is not forgiven by the 10-year rule. The 10-year rule only applies to gain on the QOF interest itself, not the original rolled-over gain.

The holding period runs from the date the investor acquired the QOF interest, not from when the fund itself acquired underlying property. That distinction matters for LPs who bought into a fund after its formation, since their personal 10-year clock may run later than the fund's own timeline.

Because the exclusion hinges on an accurate fair market value at the sale or exchange date, investors relying on the 10-year rule need a defensible valuation of their LP interest to support the basis step-up election. A QOF valuation prepared in accordance with USPAP and Rev. Rul. 59-60 methodology gives investors, their CPAs, and tax attorneys documented support for that election rather than an informal estimate. For background on the broader program these rules sit inside, see what qualifies as an Opportunity Zone and how to qualify for QOZ investment benefits.