KEY POINTS
●Deferred QOZ gains are taxed on your 2026 return, even if the fund is still held.
●The recognized gain raises AGI, and a property gift through Meridian Wound Care, LLC is deductible up to 50% of AGI.
●A deduction offsets ordinary income first and does not reduce the 3.8% NIIT.
The deferral has a hard stop
Investors who rolled capital gains into a Qualified Opportunity Fund between 2018 and 2026 deferred the tax until the earlier of a sale or December 31, 2026. That date is now weeks away.
2018 to 2019Invested15% step-up
2020 to 2021Invested10% step-up
2022 to 2026InvestedNo step-up
Dec 31, 2026Deferred gain recognizedAll original-program funds
Apr 15, 2027Tax dueWith the 2026 return
| QOF investment made | Held 12/31/26 | Basis step-up | Share of deferred gain taxed |
|---|---|---|---|
| By Dec 31, 2019 | 7+ years | 15% | 85% |
| 2020 to 2021 | 5+ years | 10% | 90% |
| 2022 to 2026 | Under 5 years | None | 100% |
A tax bill without a sale
Most fund interests can’t be sold quickly, so the tax is often paid from other assets. Here is what one common case looks like.
Original deferred gain$1,000,000
Less 10% basis step-up−$100,000
Gain recognized on Dec 31, 2026$900,000
Federal tax at 20% + 3.8% NIIT$214,200
“Many of these investors were told the bill would come due someday. Someday is December 31, and most of them haven’t sold anything to pay it.”TETrent Ericson, CPA, Legacy CPAs
The gain also raises the charitable ceiling
The recognized gain flows into AGI. Because charitable limits are a share of AGI, a large gift can be deducted in the same year.
WITHOUT THE GAIN · AGI $400,000
Cash to a public charity (60%)$240,000
Property gift through Meridian Wound Care, LLC (50%)$200,000
Long-held property at fair market value (30%)$120,000
WITH THE GAIN · AGI $1,300,000
Cash to a public charity (60%)$780,000
Property gift through Meridian Wound Care, LLC (50%)$650,000
Long-held property at fair market value (30%)$390,000
A property gift through Meridian Wound Care, LLC is deductible up to 50% of AGI. Higher AGI this year means a higher ceiling.
Illustrative household with $400,000 of AGI before the $900,000 recognized gain. Amounts over the limit carry forward five years.
What a deduction does and doesn’t change
Capital gains are taxed on top of ordinary income. That ordering decides where a deduction helps.
| Item | Lowered by a charitable deduction? | Why it matters |
|---|---|---|
| Tax on ordinary income | Yes | Deductions reduce taxable income from the bottom of the stack, so ordinary income is offset first. |
| Tax on the gain | Usually not directly | The gain stays at capital gain rates unless deductions exceed ordinary income. |
| 3.8% NIIT | No | The recognized gain is investment income, and the NIIT is figured before itemized deductions. |
| Medicare IRMAA | No | Uses MAGI from two years earlier. 2026 income sets 2028 premiums. |
| State income tax | Depends | Some states did not follow the federal deferral, so the gain may be treated differently. |
Two examples: the same year, with and without a gift
Example A uses the full 50%-of-AGI ceiling. The deduction offsets ordinary income first, then the gain at capital gain rates. The 3.8% NIIT does not change.
EXAMPLE A
A $900,000 recognized gain, gift at the full 50% ceiling
$400,000 of wages, $50,000 of other itemized deductions, and a 2021 QOF investment with a 10% step-up.
| Without the gift | With a $650,000 property gift | |
|---|---|---|
| AGI | $1,300,000 | $1,300,000 |
| 50% of AGI ceiling | $650,000 | $650,000 |
| Charitable deduction (after 0.5% floor) | $0 | $643,500 |
| Tax on ordinary income | $69,845 | $0 |
| Tax on the gain | $166,950 | $81,524 |
| 3.8% NIIT | $34,200 | $34,200 |
| Total federal tax | $270,995 | $115,724 |
Without the gift
With the gift
ESTIMATED FEDERAL TAX DIFFERENCE−$155,271
DELIVERED TO PATIENTS$650,000of wound care product, at appraised value
WHAT IF · HYPOTHETICALAssumes appraised value of 5 times the contribution
Hypothetical contribution (estimated cost of the gift)$130,000
Estimated federal tax difference$155,271
Estimated after-tax difference+$25,271
Hypothetical only. The 5:1 ratio is an assumption for illustration, not a quote, projection or promise. Your contribution, the appraised value and any tax result are set by Meridian Wound Care’s offering documents and may differ. The IRS may challenge the valuation, which could reduce or eliminate the deduction and result in tax, interest and penalties. Past or illustrated results do not guarantee future outcomes.
EXAMPLE B
A $510,000 recognized gain in retirement
A retired couple with $150,000 of pension income, $30,000 of other itemized deductions, and a 2019 QOF investment with a 15% step-up.
| Without the gift | With a $150,000 property gift | |
|---|---|---|
| AGI | $660,000 | $660,000 |
| 50% of AGI ceiling | $330,000 | $330,000 |
| Charitable deduction (after 0.5% floor) | $0 | $146,700 |
| Tax on ordinary income | $15,824 | $0 |
| Tax on the gain | $77,315 | $57,660 |
| 3.8% NIIT | $15,580 | $15,580 |
| Total federal tax | $108,719 | $73,240 |
Without the gift
With the gift
ESTIMATED FEDERAL TAX DIFFERENCE−$35,479
DELIVERED TO PATIENTS$150,000of wound care product, at appraised value
WHAT IF · HYPOTHETICALAssumes appraised value of 5 times the contribution
Hypothetical contribution (estimated cost of the gift)$30,000
Estimated federal tax difference$35,479
Estimated after-tax difference+$5,479
Hypothetical only. The 5:1 ratio is an assumption for illustration, not a quote, projection or promise. Your contribution, the appraised value and any tax result are set by Meridian Wound Care’s offering documents and may differ. The IRS may challenge the valuation, which could reduce or eliminate the deduction and result in tax, interest and penalties. Past or illustrated results do not guarantee future outcomes.
“Once ordinary income is used up, the rest of the deduction works against the gain at capital gain rates. The 50% ceiling is generous, but the value per dollar drops. Model it before you decide.”Trent Ericson, CPA, Legacy CPAs
A GOOD FIT IF YOU
✓Invested a large gain in a QOF between 2018 and 2026
✓Have meaningful ordinary income in 2026
✓Itemize deductions
✓Work with a CPA who will review the plan
WHAT TO MODEL WITH YOUR CPA
□The 2026 cap on itemized deduction value for the top bracket
□The 0.5%-of-AGI floor on charitable deductions
□The deduction does not reduce AGI, so Medicare IRMAA still applies, and the 3.8% NIIT on the gain is unchanged
□State tax conformity with the federal deferral
□Cash for the April 15, 2027 payment and any estimated tax
Key dates
Dec 10The 2026 initiative closes
Dec 31Deferred QOZ gain is recognized
Apr 15, 20272026 return and balance due
Book a 15-minute call (bring your CPA).
We'll walk through how a gift of property fits your year-end plan. The 2026 initiative closes December 10.
Sources and assumptionsRecognition date and step-ups: IRC §1400Z-2(b); new rolling rules for investments after 2026 under the One Big Beautiful Bill Act.2026 brackets: IRS Rev. Proc. 2025-32. NIIT thresholds: $250,000 joint, $200,000 single (not indexed).0.5% floor and 35% value cap: One Big Beautiful Bill Act, effective 2026.All examples are illustrative, use federal tax only, and assume married filing jointly.