The Opportunity Zone (OZ) program, first introduced under the 2017 Tax Cuts and Jobs Act (TCJA), was designed to encourage long-term investment in economically distressed communities by offering investors significant tax incentives. With the passage of the One Big Beautiful Bill Act (OBBBA), the landscape for Opportunity Zone investments is evolving. This brings new rules, expanded benefits, and enhanced reporting requirements. This article explores key differences between TCJA and OBBBA, highlighting what investors and communities should know about the future of Opportunity Zones.
Read Also: Ohio’s Revamped Opportunity Zone Tax Credit Offers New Incentives For Investors
Current Qualified Opportunity Zone Law Under TCJA
Qualified Opportunity Zones (QOZ) were established as part of the 2017 TCJA to provide tax incentives to spur long-term investment in distressed communities throughout the U.S. As businesses and investors invest eligible gains (within the 180-day reinvestment period) in these zones, they can receive federal tax incentives, while simultaneously stimulating economic activity.
Investor Benefits Under TCJA Legislation:
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- Tax Deferral – Capital gains rolled into Qualified Opportunity Fund (QOF) deferred until no later than Dec. 31, 2026.
- Basis Increases – 10% if the original investment is held for 5 years. 15% if held for 7 years.
- Permanent Tax Exclusion – If QOF investment is held for 10 years or more, no gains are taxed on appreciation upon sale (except for inventory).
- Ohio Tax Credit – Investors may be eligible for a 10% tax credit on their investment in Ohio QOFs.
Qualified Opportunity Zone Legislation Comparison
This table compares the key differences between the Tax Cuts and Jobs Act (2017) and the One Big Beautiful Bill Act (2025) regarding the Opportunity Zone program.
TCJA |
OBBBA |
|
| Zone Designations | Over 8,000 zones were designated nationwide after the nomination and certification process was completed by state governors. | Starting July 1, 2026, QOZs will be designated in 10-year cycles. New tracts go into effect on January 1, 2027. |
| Capital Gain Reinvestment Period | Within 180 days | Within 180 days |
| Maximum Gain Deferral | All deferred gains must be recognized no later than December 31, 2026 | QOF investments made on or after Jan. 1, 2027, have a maximum deferral period of five years from the date of the QOF investment. |
| Basis Increase on Gain Deferral | Investment held for 5 yrs: 10%
Investment held for 7 yrs: 15% |
Investments held for 5 yrs: 10%
Investments held for 7 yrs: N/A |
| 10 Year Investment Benefit | May elect to step up your basis to the fair market value at the time of sale or exchange. No tax on gain from appreciation of QOF interest. | May elect to step up your basis to the fair market value at the time of sale or exchange. No tax on gain from appreciation of QOF interest. |
| Rural Opportunity Zones | N/A | Designations starting July 1, 2026. Designation every decade.
Allow a 30% basis step-up after a five-year holding period. |
For more information on Opportunity Zone investments before the OBBBA legislation, read: Essential Opportunity Zone Business Requirements for Success
OBBBA Legislation
Opportunity Zone Designation Process
Under the Opportunity Zones Transparency, Extension, and Improvement Act provisions (incorporated into OBBBA legislation), the opportunity zone designation process has expanded. The new law creates rolling 10-year designations starting July 1, 2026, and going into effect Jan. 1, 2027. The criteria for qualifying as low-income have been narrowed under the OBBBA legislation. Now, areas with a median income of 70% or less of the statewide median income, as opposed to the TCJA figure of 80%, can be eligible for designation. Once certified, the designation lasts for 10 years, and the process will repeat, creating a permanent rolling OZ program. OBBBA legislation replaces the TCJA one-time designation and will allow for ongoing updates and improvements to the opportunity zone program.
Opportunity Zone Benefits Under OBBBA
Beginning Jan. 1, 2027, investors can defer capital gains for five years by investing in a Qualified Opportunity Fund. Once the five-year mark is achieved, investors will receive a 10% step-up in basis on the deferred capital gains. The seven-year 15% step-up is no longer applicable under OBBBA legislation. The OBBBA does preserve the 10-year election to step up the basis of investments to fair market value on the date of sale or exchange, so that there will be no tax on the gain from appreciation of QOF interest. Additionally, investments held for 30 years or longer are eligible for a basis step-up to fair market value without disposing of the investment. Additional appreciation after this election is made will be subject to capital gains tax when the investment is sold.
Rural Opportunity Zone Funds
Starting with designations on July 1, 2026, the OBBBA creates new qualified rural opportunity zone funds. These go into effect on Jan. 1, 2027. These designations will be in effect for 10 years, with new designations occurring decennially to create an ongoing process into future years. New and unique benefits will be provided to funds that hold at least 90% of their assets in QOZ property located in rural areas. Rural zone investment provides a 30% basis step-up after a five-year holding period. This is versus the standard 10% step-up from non-rural zones. Additionally, the standard substantial improvement requirement has been reduced for rural opportunity zones. These zones require a substantial improvement of a 50% increase in basis for existing structures, versus the standard 100% basis increase requirement for non-rural zones. These enhanced benefits make investing in rural opportunity zones attractive for investors seeking tax-saving benefits while trying to develop in rural areas.
Read Also: Ohio’s Revamped Opportunity Zone Tax Credit Offers New Incentives For Investors
New Reporting Requirements
Under OBBBA legislation, new annual reporting requirements will apply to Qualified Opportunity Funds, Qualified Rural Opportunity Funds, Qualified Opportunity Zone Businesses, and investors, which will be effective July 4, 2025. New requirements are as follows:
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- Annual Information Returns for Funds: Detailed returns must be filed with the IRS annually, disclosing the Fund’s NAICS code, an estimated number of units for any real property, the average number of full-time employees, fund structure, asset values, business property, and investor dispositions.
- Investor Statements: QOFs must provide written statements to any investor who disposed of their investment during the year.
- Qualified Opportunity Zone Business Reporting: Each QOZB is required to provide information to each QOF to support their reporting requirements.
Penalties of $500 per day, up to $10,000 maximum for small QOFs (less than $10 million in gross assets) and up to $50,000 for large QOFs (more than $10 million in gross assets) can result if these obligations are not met. Penalties increase if the obligations are intentionally avoided.
Contact GBQ For Assistance
The OZ program is undergoing significant changes with the introduction of the OBBBA. Investors and communities can expect new designation cycles, updated eligibility criteria, enhanced benefits for rural investments, and stricter annual reporting requirements. These updates aim to drive long-term growth and transparency in distressed areas across the country. For personalized guidance on Opportunity Zone investments and to learn how these legislative changes may impact your strategy, contact GBQ today.
By Brandon Shafer and Allie Bastian, CPA, Tax & Advisory
Looking for additional opportunities for real estate investors? Check out these resources:
Ohio’s Revamped Opportunity Zone Tax Credit Offers New Incentives For Investors
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