The One Big Beautiful Bill Act (OBBBA) introduces multiple changes to the Qualified Opportunity Zone program, which will benefit investors and those living in Qualified Opportunity Zones.
What are Qualified Opportunity Zones?
Qualified Opportunity Zones are economically distressed communities nominated by the state and certified by the Treasury Department. Initially established under the Tax Cuts and Jobs Act (TCJA) of 2017, the Qualified Opportunity Zone program offers tax incentives for private, long-term investment in Opportunity Zones to spur economic development and job creation in these communities.
How it Works
Investors don’t invest directly in Opportunity Zones. Rather, they invest in Qualified Opportunity Funds, which in turn invest in Qualified Opportunity Zones. The program allows investors to defer the gain from selling appreciated assets (e.g., stocks, real estate, artwork, collectibles, etc.) by reinvesting the gain into a Qualified Opportunity Fund.
Key Changes Under OBBBA
- The Qualified Opportunity Zone program has been made permanent.
- Under the previous law, the program for the reinvestment of capital gains that occurred after December 31, 2026, was set to expire.
- Capital gains invested in Opportunity Zones after December 31, 2026, will be eligible for deferral on a five-year rolling basis. In addition, investors will receive a step-up in basis of 10% in year five. It’s also worth mentioning that previously deferred gains (i.e., gains invested before December 31, 2026) remain taxable on December 31, 2026.
- Under prior law, any taxable gain invested in a Qualified Opportunity Fund didn’t need to be recognized until December 31, 2026, or until the interest in the fund was sold or exchanged, whichever occurred first.
- There is an increased benefit for rural investments—investors in Qualified Rural Opportunity Funds receive a step-up in basis of 30% in year five.
- The exclusion for both TCJA and OBBBA investments is now capped at 30 years. After year 30, the fair market value is frozen, and any appreciation after 30 years will need to be recognized upon sale.
Considering investing in a Qualified Opportunity Zone? Contact RKL today to maximize your investment.
