Opportunity Zone vs. 1031 vs. Cash Out

Cash out, exchange, or Opportunity Zone?

When you sell a property or other appreciated asset, you face three broad choices for what to do with the capital gain. Each trades simplicity, flexibility, and tax efficiency differently.

• Cash out. Pay the capital-gains tax now — federal long-term rate plus net investment income tax (NIIT) plus any state levy — and invest whatever is left. The math is simple, but you start compounding on a smaller base because a significant portion goes to the IRS immediately.
• 1031 exchange. Reinvest the full gain into like-kind replacement property and the tax is deferred indefinitely. The entire gain keeps compounding in real estate. At death, heirs may receive a step-up in basis that effectively erases the deferred tax.
• Opportunity Zone fund (QOF). Invest the capital gain in a Qualified Opportunity Fund. The original gain's tax is deferred, and appreciation inside the fund can be entirely tax-free after the required holding period — though OZ rules carry their own timeline and complexity. Legislation in 2025 changed certain deferral dates and basis step-up provisions; confirm current requirements with your tax advisor.

Reading the calculator

The tool applies a single annual return to all three strategies and shows where each ends after your chosen hold period. The 1031 exchange wins on raw dollars because the full gain compounds untaxed throughout. The OZ result reflects the gain growing for the full period and then the original gain tax coming due at the end. The cash-out result begins from a smaller base — the gain net of tax — and compounds from there.

These are simplified illustrations. They use a flat return, ignore interim distributions and reinvestment taxes, and do not model depreciation, debt leverage, or the stepped-up basis benefit of a 1031 held until death. Use the numbers to orient your thinking, then work with a CPA and a qualified intermediary before choosing a path.