Opportunity Zones Under the One Big Beautiful Bill Act

Originally enacted as part of the Tax Cuts and Jobs Act of 2017, Opportunity Zones (OZs) were created to channel private capital into economically distressed census tracts via tax-favored investments. The original incentives included:

• Deferral of capital gains on initial investments until a fixed date (previously December 31, 2026)
• Basis step‑ups of 10% or 15% for the deferred gain, depending on holding period
• Full exclusion of capital gains generated by QOZ investments held for at least 10 years

Until now, the Qualified Opportunity Zone program was set to expire at the end of 2026.

Key changes in the One Big Beautiful Bill Act: How the law enhances OZ incentives

1. Permanent program with a regular cadence of OZ designations

The One Big Beautiful Bill Act (OBBBA) eliminates the sunset date and makes the Opportunity Zone program permanent. Beginning July 1, 2026, governors of each state will propose new census tracts every 10 years. Qualified zones will take effect January 1 of the following year and remain in force for 10 years under renewed eligibility standards. This rolling framework ensures the program remains targeted toward the most economically distressed areas and prevents stagnation or dilution of benefits to communities that have already improved.

2. Rolling five‑year deferral and 10% basis step-up

Under the new framework starting January 1, 2027, capital gains deferred through qualified OZ investments are recognized on the fifth anniversary of the investment, not at a fixed calendar date. Investors also receive a permanent 10% basis step‑up on the deferred gain. Note that this rolling deferral does not apply to investors already in QOZ investments under the 2017 plan. The additional 5% step-up at the seven-year mark has been eliminated in the OBBBA.

3. Enhanced rural incentives via Qualified Rural Opportunity Funds (QROFs)

One new addition is the introduction of Qualified Rural Opportunity Funds, which enjoy a 30% basis step‑up after five years (versus 10% for standard Qualified Opportunity Funds). A rural area is defined as any area that is not a city or town which has a population greater than 50,000 or an urbanized area adjacent to such a city or town. QROFs are also subject to a reduced “substantial improvement” requirement, where only 50% of the adjusted basis must be reinvested in property improvements (compared to 100% for standard Qualified Opportunity Funds).

4. Tightened guardrails around QOZ designations

The new rule lowers the median family income threshold for eligible tracts to 70% of the state or metropolitan area (down from 80%). A new “anti-gentrification” trigger is also introduced that automatically disqualifies tracts when median family income exceeds 125%. The “contiguous tract” rule is eliminated, which had previously permitted census tracts next to QOZ tracts to be included as long as the median family income didn’t exceed 125% of the adjacent low-income community.

What doesn’t change: Important reminders about the Qualified Opportunity Zone program

5. Eligible gains

Eligibility includes capital gains on the sale of a variety of assets, including real estate, businesses, stocks, mutual funds, collectibles, and even cryptocurrency.

6. 180-day reinvestment window

Investors still have a 180-day window from the date they recognize a gain to reinvest funds into a Qualified Opportunity Fund (QOF). K-1 partnership gains have additional timing flexibility.

7. 10-year basis step-up

The basis of the QOF investment receives a step up to fair market value after a 10-year holding period. Any depreciation recapture is also eliminated. The step up applies when the investment is sold, and there is up to a 30-year limit where the basis is frozen.

8. No changes for Qualified Opportunity Zone investors prior to January 2027

Investors that invest gains prior to December 31, 2026, will still be subject to the existing rules, which include the original gain deferral deadline of December 31, 2026. The same deadline also still applies to the holding period requirements for the existing step-up in basis (five years for 10% and seven years for an additional 5%), which means that new investors today—along with all others that invested after 2021—would not be eligible for either step-up.

Why invest in QOZs prior to January 2027?

Investors that reinvest gains into a QOF between now and December 31, 2026, will still be subject to the original rules from 2017. This includes the deferral and basis step-up deadline of December 31, 2026, a little more than a year away. Investors can’t always control the timing of a gain, and there are other dynamics that may make delaying the sale of a business or other asset disadvantageous relative to the additional benefit of the 2027 version of the tax law.

For investors that do commit capital to a project in the early stages of development, it’s possible that the “J curve” effect (a short-term worsening followed by a long-term improvement) may result in real estate projects currently under construction being valued below their potential future stabilized levels, which would result in a relatively lower tax liability for 2027. Investors today can also continue to invest in attractive census tracts that are likely to be phased out of the program beginning in 2027.

Last, some believe that commercial real estate offers a compelling entry point today considering the contraction in property values that the sector experienced starting in 2022. This opportunity may not be as attractive in future years as the commercial real estate sector recovers.

The economic impact of the QOZ program so far

Based on estimates from Novogradac, the introduction of the Qualified Opportunity Zone program has drawn over $120 billion of real estate investment into underserved communities, which has dramatically altered the trajectory of those communities. According to the Economic Innovation Group, the QOZ program has spurred construction of over 313,000 new housing units and now accounts for nearly half of all residential construction in QOZ tracts, serving to reignite a previously stagnant portion of the nation’s housing supply.

The success of the program to date has come despite looming uncertainty about program deadlines that were fast approaching. Now that investors can plan with certainty, we expect QOZ participation to accelerate, which will continue to funnel investment into the communities and citizens who need it the most.

The One Big Beautiful Bill Act transforms Opportunity Zones from a temporary experiment into a permanent tax deferral and community development instrument. With zone redesignation every 10 years, stronger rural incentives, and tighter targeting criteria, OZ investors now have the planning assurance needed for long-term projects, while communities—especially lower‑income and rural ones—stand to benefit from better-focused capital flows. With added certainty, the program can be a powerful tool for managing the tax liabilities that come with successful investing.

Please get in touch with your Cerity Partners advisor to discuss how these recent tax changes from the One Big Beautiful Bill Act may impact your investment strategy and overall financial plan. If you are not yet a client, we invite you to request an introduction with our concierge to explore your objectives and be matched to the right financial advisor for your unique needs.

Interested in learning more about the financial impacts of the One Big Beautiful Bill Act? Review our articles discussing the key takeaways of the OBBBA, how it impacts estate planning, and hidden “easter eggs” within the bill.