New Tax Law Makes Opportunity Zones Permanent by Alex Keneiby, CPA
Posted on August 13, 2025
by
Alex Keneiby
The enactment of the One Big Beautiful Bill (OBBB) redefines and makes permanent the Qualified Opportunity Zone (QOZ) program introduced in 2017, ushering in new tax benefits for a broader range of qualifying investors.
Background
The Tax Cuts and Jobs Act (TCJA) introduced the concept of Qualified Opportunity Zones (QOZs) to help incentivize private investment in economically distressed communities. The law provides a temporary deferral and partial exclusion of tax on capital gains resulting from the sale or exchange of qualifying property, such as real estate, stocks and bonds, collectibles and businesses, that taxpayers reinvest into Qualifying Opportunity Funds (QOFs) and Qualified Opportunity Zone Businesses (QOZBs) within 180 days. When investors hold onto their qualifying QOZ investments for at least 10 years, they may completely escape tax on that investment’s future appreciation.
Qualified Opportunity Zones in 2026 and Beyond
The OBBBA makes the QOZ a permanent fixture of the tax code, eliminating the original Dec. 31, 2026, sunset date and replacing it with rolling cycles of tax deferral for new investments made on or after Jan. 1, 2027. Existing investors may still qualify to avoid tax on their original QOF and QOZB investments held for 10 years. However, investors should note that the OBBBB does not simply continue the old program; instead, it introduces a second round of the program with new rules and benefits, including the following:
- A new five-year rolling period for capital gains deferral begins on the date the taxpayer invests in a QOF or QOZB. This means taxpayers can defer tax on capital gains when they reinvest sales proceeds into a QOZ that they hold for five years, without any limits or restraints to the original investment date.
- Opportunity Zone investments held for five years receive a permanent 10 percent step-up to the basis of original gain, meaning the investor can exclude 10 percent of the capital gain from taxation. QOZs held for five years in rural areas can yield investors a more substantial 30 percent exclusion.
- With QOFs held for 10 years or longer, taxpayers can step-up the basis of their investment to its fair market value on the date of sale or disposition, essentially eliminating federal income tax on the investment’s appreciation.
Along with these changes, the OBBBA also narrows the definition of a low-income community to census tracts with poverty rates of at least 20 percent of the median family income, which does not exceed 70 percent of the statewide median family income. This threshold represents a decrease from the 80 percent threshold established under prior law, which is expected to eliminate an estimated 22 percent of current zones from the new law.
The benefits of investing in rural Opportunity Zones through Qualified Rural Opportunity Funds (QROFs) extend beyond the 30 percent basis step-up for investments held for five years to include relief from the law’s substantial improvement requirements. Under the OBBBA, QROFs must spend 50 percent of the cost of depreciable property on improvements. For regular QOFs and QOZBs, the improvement must equal 100 percent of the cost of the depreciable property obtained.
For QOFs and QOZBs, the new law increases compliance requirements, which now require them to report to the IRS and the public how their projects impact the communities they are intended to support. Failure to satisfy this obligation can result in penalties of up to $50,000 or more for any act of willful noncompliance.
This second round of the QOZ program streamlines some components of the existing law. Still, it does not alleviate any of the complexities taxpayers may face when trying to maximize the program’s tax-saving opportunities. Comprehensive planning should be conducted under the guidance of experienced accountants and advisors.
About the Author: Alex Keneiby, CPA, is an associate director of Tax Services with Berkowitz Pollack Brant, where he provides tax planning, compliance and consulting services to high-net-worth individuals, real estate developers and entrepreneurs. He can be reached at the CPA firm’s Miami office at (305) 379-7000 or info@bpbcpa.com.
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