A couple in their early 60s recently sold a business they had built over nearly three decades, converting a lifetime of concentrated wealth into a substantial liquid portfolio. The transaction triggered a significant capital gain and an unfamiliar tax liability. Their existing tax advisors offered straightforward counsel: pay the tax. While that may be appropriate for a portion of the gain, the couple sought a more nuanced approach that could defer or offset some of the burden while keeping the remaining capital productive.
At South Coast, the framework used for such situations is called “Stacking.” The premise is that one intelligent allocation decision can create tax-saving opportunities elsewhere on the balance sheet. Rather than viewing each investment in isolation, the strategy coordinates multiple vehicles to achieve a better overall tax outcome. For this family, two strategies fit particularly well: a Qualified Opportunity Fund (QOF) under the new QOZ 2.0 rules and a tax-aware long/short equity strategy.
QOZ 2.0 provides a five-year deferral window
The QOZ 2.0 framework, which begins in 2027, offers a rolling five-year deferral period for eligible capital gains invested in a Qualified Opportunity Fund. After five years, investors receive a 10% basis increase on the original deferred gain, and rural Opportunity Funds can qualify for a 30% basis increase. If the investment is held for at least 10 years and meets all requirements, qualifying appreciation can be excluded from federal capital gains tax entirely. Importantly, gains realized in late 2026 can still be invested within the 180-day window, potentially extending into 2027 and qualifying under the new rules.
The QOF selected for this couple focuses on multifamily real estate. The family had no meaningful real estate allocation, having been concentrated in their private business. The supply backdrop is favorable: according to Blackstone’s 2026 real estate research, U.S. multifamily construction starts are more than 60% below their 2022 peak. This investment adds a desired asset class while potentially improving the tax outcome.
Five years of loss harvesting
Tax deferral is often viewed as merely postponing a liability, but the five-year period itself has intrinsic value. Instead of waiting passively for the deferred gain to resurface, a tax-aware long/short strategy can generate capital losses during that window. Individual positions may decline even when the overall portfolio is positive, and those positions can be sold to realize losses while maintaining market exposure. Unused capital losses can be carried forward indefinitely.
Consider a hypothetical investor with a $10 million eligible capital gain. If $5 million is placed in a qualifying QOF and $5 million in a tax-aware long/short strategy, the QOF defers recognition of the $5 million gain for five years. Meanwhile, the long/short strategy is actively managed to harvest losses. Those losses accumulate as carryforwards and can offset the deferred gain when it is ultimately recognized. The exact amount of losses depends on market conditions and portfolio management, but the structure creates five years of opportunity to plan and reduce the eventual tax hit.
Stacking is not a one-size-fits-all approach
The combination of QOZ 2.0 and tax-aware long/short is not universal. For other families, charitable planning or estate tax strategies may play a larger role. An investment decision can create an opportunity for the CPA, and an estate planning decision may change how an investment is owned. The goal is to align tax planning, portfolio construction, and wealth preservation to maximize long-term outcomes.
Advisors should recognize that the value of a QOF extends beyond the fund itself. The deferral creates a window for other strategies to generate tax benefits. As the industry evolves, tools like self-directed IRA custodians and advisor technology can help implement such coordinated strategies. The key is to think holistically about the balance sheet, not just individual investments.
