How the One Big Beautiful Bill Changed Qualified Opportunity Zones

The One Big Beautiful Bill Act (the “OBBBA”) was signed into law on July 4, 2025. The bill made several notable changes to domestic tax policies. One of these was an overhaul of the Qualified Opportunity Zone (“QOZ”) program, which was introduced as part of the Tax Cuts & Jobs Act (the “TCJA”) in 2017.

What is a Qualified Opportunity Zone?

The goal of the QOZ program is to increase long term investment across the United States in low-income communities. It does this by giving tax benefits to investors who hold the property over a term of years. To be designated a low-income community, the governor of a state must nominate an area and the Treasury Department of the United States must certify the nomination. As passed in the TCJA, the QOZ program was set to expire in 2028.

Qualified Opportunity Zones Are Now Permanent

One of the most notable changed the OBBA made to the QOZ program is that it made it permanent. This program will now continue indefinitely, allowing for increased economic development in low-income communities going forward. Once a low-income community qualifies as a QOZ, it will carry the designation for 10 years.

Qualified Opportunity Zone Certificaiton Under the OBBBA

Under the OBBA, to eligible for certification as an QOZ a low-income community must not have a median family income greater than 70% of the median family income of the applicable state or metropolitan area. Another way to be eligible for certification is to for a low-income community’s median family income to be less than 125% of the applicable state or metropolitan area’s media family income.

New Deadlines for Qualified Opportunity Zones

In line with the change from a temporary to permanent program, several of the significant dates the TCJA version of the QOZ program have been given set times lines.

New Five Year Deferral Period on Gains Invested Into a Qualified Opportunity Fund

For example, under the TCJA QOZ program, the recognition of gain from a sale of an investment could be differed through investing in a Qualified Opportunity Fund, which is a corporation or partnership that is required to hold at least 90% of its assets within a QOZ. The recognition could be differed until the earlier of two events, an exit from the Qualified Opportunity Fund or December 31, 2026, which would have been the date the QOZ program would have ended under the TCJA. The OBBBA replaces the set date of December 31, 2026, to five years after the investment is made.

The Fate of the 5% Step Up in Basis After Seven Years

To make up for this shorter window (10 years under the TCJA vs 5 years under the OBBBA), Investments made after December 31, 2026 and held for five years will receive a 10% step-up in basis, which can be used against the differed gain. However, the additional 5% step-up in basis if the investment is held for 7 years has been eliminated. The 100% step-up in basis if the investment is held for 10 years still applies.

New 30-Year Limit on Tax-Free Appreciation for Qualified Opportunity Fund Investments

Similarly, the previous sunset that eliminated these benefits for investments in a Qualified Opportunity Fund by the end of 2047 has been removed. Instead, is replaced with final step up in basis at 30 years. Now, if an investment is held for longer than 30 years, gain will be recognized on the difference between its basis at the end of the 30-year period and the appreciation after the 30-year period upon disposition of the investment.

What is a Qualified Rural Opportunity Fund?

To further incentivize investment into rural areas, the OBBA creates Qualified Rural Opportunity Funds (a “QROF.”) Like a Qualified Opportunity Fund, a QROF must hold at least 90% of its assets in the QOZ in which it operates. However, in a QROF can only operate QOZ that are entirely within a rural area. Rural is defined as being any area than is not a city or town with a population of less than 50,000 or an urbanized area adjacent to a city or town with a population greater than 50,000. In exchange for these restrictions, investments into a QROF are eligible for a 30% step-up in basis in 5 years.

New Qualified Opportuntiy Zone Compliance Regime

The OBBBA created a new regime contained in Code Section 6039K and 6039L. Penalties for failure to comply can easily become 5 figure sum per return. These penalties are adjusted for inflation.

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