The short answer
Only if the buyer is not a related person. Section 1400Z-2(a)(1) covers gain from a sale to, or exchange with, an unrelated person, and subsection (e)(2) defines related by borrowing sections 267(b) and 707(b)(1) with 20% substituted for 50%. A sale to your spouse, parent, child or sibling, to a corporation or partnership you own more than 20% of, or to one your family's holdings push you past 20% of, produces gain that cannot be deferred at all. A sale to a co-owner who is not family, or to an entity in which you keep 20% or less after attribution, is eligible.
At a glance
| Statutory test | Gain must come from a sale to an unrelated person |
|---|---|
| Related means | Sections 267(b) and 707(b)(1), reading 20% wherever they say 50% |
| Family | Brothers and sisters, spouse, ancestors and lineal descendants |
| Not family | In-laws, aunts, uncles, nieces, nephews and cousins |
| Entities | A corporation or partnership in which you own more than 20%, counting shares held by family |
| Passthrough sales | Tested against the entity, and again against each electing partner |
| Effect | Related-person gain is not eligible gain; no partial deferral |
The statute asks for an unrelated buyer and sets the ownership line at 20%
Section 1400Z-2(a)(1) allows the deferral for gain from the sale to, or exchange with, an unrelated person of any property. Subsection (e)(2) then says persons are related if they are described in section 267(b) or 707(b)(1), with 20 percent substituted for 50 percent wherever those sections use it.
Reg. section 1.1400Z2(a)-1(b)(11)(i)(C) builds the same test into the definition of eligible gain: the gain must not arise from a sale or exchange with a person related to the taxpayer that would recognize it, or to any passthrough entity that recognizes and allocates it. The IRS opportunity zone FAQs repeat that eligible gains are those not from a transaction with a related person.
The 20% line is unusual. Most related-party rules in the Code, including the one for 1031 exchanges in who counts as a related party in a 1031 exchange, use more than 50%. Here a minority stake you keep in the buyer can be enough to close the door.
Family is defined narrowly, and attribution widens the entity tests
Section 267(b)(1) lists members of a family, and section 267(c)(4) defines family as an individual's brothers and sisters, whether whole or half blood, spouse, ancestors and lineal descendants. A sale to your son-in-law, your aunt, your nephew or your cousin is not a sale to family under this list.
The entity rules are where attribution bites. Section 267(b)(2) pairs an individual with a corporation in which that individual owns more than 20%, after the substitution, of the stock by value, and section 267(c)(2) treats you as owning stock held by your family. Section 707(b)(1)(A) does the same for a partnership and a person owning more than 20% of its capital or profits, using the constructive ownership rules of section 267(c) through section 707(b)(3).
Section 267(b) also pairs two corporations in the same controlled group, a corporation and a partnership with common owners above the threshold, and an estate with its beneficiaries. Each of those pairs is read at 20% for this purpose.
Four buyers, four answers
A sale of your company's stock to your daughter: she is a lineal descendant, the gain is related-person gain, and no part of it is eligible. The result is the same whether she pays full price or not.
A sale to your business partner who is not family: unrelated, so the gain is eligible, provided the partner is not also an entity you own more than 20% of. A sale to the partnership itself in a redemption is different, because section 707(b)(1)(A) pairs you with a partnership in which you hold more than 20%; who makes the election when a partnership sells covers the entity-level version of the test.
A sale to an LLC taxed as a partnership in which your son holds 25% and strangers hold 75%: section 267(c)(2) attributes his interest to you, so you are treated as owning more than 20% and the buyer is related. A sale to a management group that is paying with its own money and in which you keep no stake: unrelated, and eligible.
Hypothetical: a $3,000,000 sale, two structures, one deferral
Round, hypothetical figures. You own all of an S corporation and plan to retire in 2027 with a $3,000,000 gain on the shares. Your son is the natural buyer, and a competitor has also made an offer.
Sell to your son and the $3,000,000 is taxed in 2027. Using the 2026 brackets in Rev. Proc. 2025-32 for illustration, nearly all of it sits above the $613,700 joint line where the 20% rate begins, so the federal capital gains tax alone is close to $600,000 before any net investment income tax or state tax. A fund cannot take any of it.
Sell to the competitor and the whole $3,000,000 is eligible gain. Invest $3,000,000 in a qualified opportunity fund by day 180 and the gain leaves the 2027 return, coming back at the earlier of a sale of the interest or five years with a 10% basis increase, as the deferral length for 2026 versus 2027 explains. A fund interest is a private, illiquid investment that can lose value, and the family sale may still be the right business decision; the point is only that the deferral is not available to soften it. Run the comparison with your CPA.
Gains that pass through an entity are tested twice
When a partnership or S corporation sells and the gain reaches you on a K-1, Reg. section 1.1400Z2(a)-1(c)(8)(ii)(C) requires the gain to be eligible with respect to the entity and to have come from a buyer who is not related to you, the partner. A buyer who is unrelated to the entity but is your brother blocks your share while your co-owners' shares remain eligible.
The test is applied to the buyer of the property, not to the fund. You may invest in a qualified opportunity fund sponsored or partly owned by people you know; what matters is who bought what you sold. The fund's own structure and diligence are covered in QOF due diligence.
Section 1031 has its own related-party rule with a two-year holding condition rather than a ban, which is why a related-party sale of real estate can sometimes still be exchanged. For goodwill, stock and other non-real-estate gains there is no exchange route and no cure, so settle the buyer question before you plan around the fund.
Related questions
Is my brother-in-law a related person?
No. Section 267(c)(4) limits family to siblings, spouse, ancestors and lineal descendants, so in-laws are not family. Check, though, whether an entity he owns is one your spouse's holdings push you past 20% of.
I will keep 15% of the company after the sale. Is the buyer related?
Not on that fact alone, since the test is more than 20% of the stock by value, counting family-held shares. A stake of 20% or less, with no attributed shares, keeps the buyer unrelated.
Can I defer the part of the gain that is at arm's-length price?
No. The exclusion is about who bought, not what they paid. Gain from a sale to a related person is not eligible gain in any amount.
Does the related-person rule apply to stock sold on an exchange?
No. A sale through a public market is not a sale to a related person, so stock and crypto gains realized that way are eligible; stock or crypto gains in a fund covers them.
My family trust is buying. Is it related to me?
Section 267(b) pairs grantors, fiduciaries and beneficiaries of trusts in several combinations, each read here with the 20% substitution. Have counsel apply the list to the trust's terms before the sale closes.
Sources
Checked against these publications on October 8, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.
- 26 U.S. Code section 1400Z-2, Special rules for capital gains invested in opportunity zones
- Reg. section 1.1400Z2(a)-1, Deferring tax on capital gains by investing in opportunity zones
- 26 U.S. Code section 267, Losses, expenses, and interest with respect to transactions between related taxpayers
- 26 U.S. Code section 707, Transactions between partner and partnership
- IRS, Opportunity Zones Frequently Asked Questions
- Public Law 119-21, section 70421 (opportunity zone amendments)
- IRS, Rev. Proc. 2025-32, 2026 inflation adjustments