With the passage of the One Big Beautiful Bill Act of 2025, the Qualified Opportunity Zone program has undergone a significant overhaul since it was first introduced in 2017—bringing permanence to the program and introducing new rules.
IN THIS ARTICLE:
- OBBBA makes Qualified Opportunity Zones (QOZs) a permanent program.
- Investors can now enjoy a 10% step-up in basis after five years.
- The law introduces Qualified Rural Opportunity Funds, which invest exclusively in rural communities and offer stronger tax incentives to encourage investment outside cities and suburbs.
What is a qualified opportunity zone?
Qualified opportunity zones (QOZs) were established under the Tax Cuts and Jobs Act of 2017. They were designed to attract investment in economically distressed areas by offering tax benefits to those who invest in them through qualified opportunity funds (QOFs).
QOZs are now permanent
Previously, the original QOZ program was set to end December 31, 2026. However, with OBBBA, the program is now permanent.
State governors will nominate new Qualified Opportunity Zones every decade, with the Treasury Secretary responsible for certifying those designations. The first round of newly-designated QOZs will take effect on July 1, 2026. Once certified, each census tract will retain its QOZ status for a 10-year period beginning January 1 of the following year.
5-Year Rolling Gain Deferral
With the previous iteration of QOZ, gains could be deferred until the end of 2026. Now that the QOZ program is permanent, the gain deferral will be set on a five-year rolling basis for investments made after December 31, 2026.
10% Step Up Basis and Elimination of Additional 5% Step Up Basis
Under the new law, investors in standard Qualified Opportunity Funds can enjoy a 10% step up in basis after the investment has been held for five years. OBBBA eliminates the extra 5% benefit that used to be available after seven years, so the maximum step up in basis is now capped at 10%.
New Qualified Rural Opportunity Funds
Because most Qualified Opportunity Zone investments have flowed into cities and suburbs, OBBBA introduces a type of fund designed to encourage investment in rural communities. This new option is called a Qualified Rural Opportunity Fund (QROF).
A QROF works much like a regular Opportunity Zone fund, with the focus that all investments must be located in rural areas. For these purposes, a rural area is defined by any place that is not a city or town with more than 50,000 people or in an area nearby a town of that size.
To encourage investment in rural areas, QROFs come with stronger tax benefits than regular Opportunity Zone funds. Investors can receive a 30% step up in basis after holding the investment for five years, compared to a 10% step up in basis under the QOZ program. In addition, projects in QROFs are subject to a reduced “substantial improvement” requirement—they only need to improve a property by more than 50% of its value, instead of doubling the investment as required under the regular rules.
Most of these enhanced benefits will apply starting in 2027, but the more flexible renovation requirement is available right away, although the IRS is expected to provide more guidance in the coming months.
100% Capital Gain Exclusion
Another important distinction between the original Qualified Opportunity Zone program and the new, permanent framework under OBBBA is how and when investors can fully exclude post‑investment gains. Previously, investors could eliminate 100% of the capital gains generated by their Opportunity Zone investment if they held the investment for at least 10 years—but this benefit was effectively limited by a hard sunset date, requiring an exit by 2047 to fully realize the exclusion. Under the new rules, the 10‑year holding requirement remains, but the exclusion is no longer tied to a fixed sunset. Instead, the law introduces a rolling framework that allows investors to achieve a 100% capital gain exclusion if sold after meeting the holding period, with a longer overall window to exit and lock in the tax‑free appreciation. After 30 years, the new law also allows for an automatic step-up in basis to fair market value after 30 years compared to QOZ 1.0’s requirement to sale to benefit from the step up to fair market value. This change provides significantly more flexibility and certainty for long‑term investors planning multi‑decade projects.
Navigate QOZ changes with Landmark CPAs
Considering a bid on a QOZ project? We can help you navigate the OBBBA changes, evaluate investment strategies, and maximize your tax benefits. Get in touch here.
