# Prop. Treas. Reg. § 1.1400Z2(a)-1: Deferring tax on capital gains by investing in opportunity zones. Proposed regulation, not in force. REG-115420-18, 86 FR 19585, published 2021-04-14 . Interprets 26 U.S.C. § 1400Z-2. Par. 2. Section 1.1400Z2-0 is amended by: 1. Revising the introductory text. 2. Adding an entry for § 1.1400Z2(a)-1(a)(3). 3. Revising the entry for § 1.1400Z2(a)-1(g)(2). 4. Adding an entry for § 1.1400Z2(a)-2. 5. Adding an entry for § 1.1400Z2(b)-1(j)(3). 6. Revising the entry for § 1.1400Z2(d)-1(e)(2). The revisions and additions read as follows: Par. 3. Section 1.1400Z2(a)-1 is amended by: 1. Adding paragraph (a)(3). 2. Revising paragraph (g)(1). 3. Redesignating paragraphs (g)(2) introductory text and (g)(2)(i) and (ii) as paragraphs (g)(2)(i) and (g)(2)(i)(A) and (B), respectively. 4. Adding a subject heading for newly redesignated paragraph (g)(2). 5. Adding new paragraph (g)(2)(ii). The revisions and additions read as follows: (a) * * * (3) Eligibility certificate needed to establish the permitted deferral amount for certain foreign persons and foreign-owned partnerships. * * * * * (g) * * * (2) Exceptions. (a) * * * (3) Eligibility certificate needed to establish the permitted deferral amount for certain foreign persons and foreign-owned partnerships. Notwithstanding any other provision of this section, if a taxpayer is a security-required person (as defined in § 1.1400Z2(a)-2(b)(1)) with respect to a gain and that gain is a security-required gain (as defined in § 1.1400Z2(a)-2(c)(1)), then the taxpayer may not make a deferral election under section 1400Z-2(a) with respect to part or all of that gain unless the requirements in paragraph (a)(3)(i), (ii), and (iii) of this section are satisfied. (i) Not later than the date on which the deferral election is filed with the IRS under paragraph (a)(2) of this section, the person obtains an eligibility certificate with respect to that gain (as defined in § 1.1400Z2(a)-2(d)(1)); (ii) The eligibility certificate provides a permitted deferral amount (as defined in § 1.1400Z2(a)-2(d)(7)); and (iii) The amount of gain sought to be deferred does not exceed the permitted deferral amount. (iv) See § 1.1400Z2(a)-2 for additional requirements for certain foreign persons and foreign-owned partnerships to make a valid deferral election. (v) Examples. The examples in this paragraph (a)(3)(v) illustrate the rule in paragraph (a)(3) of this section. (A) Example 1. Eligibility certificate for a permitted deferral amount that is less than the total amount of security-required gain. Taxpayer realizes a $100x gain, which is an eligible gain. In addition, Taxpayer is a security-required person with respect to that gain, and the gain is a security-required gain. Taxpayer invests $100x in a QOF, and, without taking into account the limitation in paragraph (a)(3)(i) of this section, Taxpayer would be able to make a valid deferral election with respect to the entire $100x gain. Taxpayer applies for an eligibility certificate with respect to that gain and receives the eligibility certificate before timely filing Taxpayer's Federal income tax return for the taxable year in which the gain would be recognized. The eligibility certificate, however, provides a permitted deferral amount of $75x. Under paragraph (a)(3) of this section, therefore, a valid deferral election is limited to that deferral amount. Consequently, $75x of Taxpayer's investment in the QOF is a qualifying investment, which is described in section 1400Z-2(e)(1)(A)(i), and no election under section 1400Z-2(a) can apply to the remaining $25x ($100x−$75x) investment. As a result, that remaining investment in the QOF is a non-qualifying investment, which is described in section 1400Z-2(e)(1)(A)(ii). (B) Example 2. Deferring gain from inclusion. In 2022, Taxpayer realizes a gain of $x, Taxpayer was a security-required person with respect to that gain, and the gain was a security-required gain. Complying with all the requirements in this section (including paragraph (a)(3) of this section), Taxpayer made a valid election to defer a gain of $x, after having invested $x in a QOF. In 2025, after Taxpayer's interest in the QOF had appreciated by $y, Taxpayer sold that interest for $x + $y. The sale was an inclusion event, requiring Taxpayer to include in income the deferred gain of $x. Under paragraph (c)(1) of this section, the $x inclusion is a security-required gain because the deferred gain was a security-required gain. If Taxpayer wants to elect to defer the $x of included gain and Taxpayer is a security-required person with respect to the included gain, the limitation in paragraph (a)(3) of this section applies. Whether the $y gain from the sale is a security-required gain is determined by whether, independent of the treatment of the inclusion, the $y gain on the sale is within the definition of security-required gain in § 1.1400Z2(a)-2(c). * * * * * (g) * * * (1) In general. Except as provided in paragraph (g)(2) of this section, the provisions of this section are applicable for taxable years beginning after March 13, 2020. (2) Exceptions. * * * (ii) Eligibility certificate requirement. Paragraph (a)(3) of this section applies to any security-required gain (as defined in § 1.1400Z2(a)-2(c)(1)) from a covered transfer (as defined in § 1.1400Z2(a)-2(c)(2)) that occurs after [DATE OF PUBLICATION OF FINAL RULE].