The Opportunity Zone program received significant changes with the passage of the One Big Beautiful Bill Act (OBBB) in July 2025. Originally introduced in 2017 under the Tax Cuts and Jobs Act (TCJA) to drive and encourage investment into underserved communities, the Opportunity Zones initiative was meant to sunset by Dec. 31, 2026, but now is extended permanently under the OBBB. While the law ushers long-term confidence and benefits for investors, it also introduces stricter criteria for eligibility, new reporting requirements and noncompliance penalties.
Permanently Extended
Among the OBBB’s biggest changes for Opportunity Zones are their permanent extension, thereby eliminating sunset provisions and reinforcing the federal government’s commitment to place-based investment. Such a move provides both investors and communities confidence in long-term investing and sustainability.
Rolling Five-Year Gain Deferral and 10 Percent Basis Step-Up
The OBBB introduces a rolling five-year gain deferral system, meaning investors may now defer capital gains for up to five years from the date of investment in a Qualified Opportunity Fund (QOF). Once five years has passed, they receive a 10 percent step-up in basis so that 90 percent of the original gain is taxable. This dynamic incentive resets with each new investment.
Gain Frozen After 30 Years
Under the OBBB, if an investment is held for 30 years or more, the taxpayer’s basis is stepped up to the fair market value at the 30-year mark. The gain will then effectively freeze at that point so that future appreciation is taxable only when the investment is sold.
Stricter Eligibility Criteria for Zone Designations
The OBBB introduces tighter eligibility for Opportunity Zone designation – communities must now have median family incomes below 70 percent of the area or statewide median, down from the original 80 percent. Also, the “contiguous tract exception” has been repealed, which was previously allowed and enabled higher-income zones to benefit that were adjacent to qualifying ones. These stricter requirements aim to effectively guarantee better and more precise targeting of economically challenged areas.
Addition of Rural Zones
The OBBB also introduces Qualified Rural Opportunity Funds (QROFs), meant to increase investment within rural communities. QROFs include enhanced benefits like a 30 percent basis step-up after five years (triple the standard incentive) and a relaxed substantial improvement requirement of 50 percent. According to the OBBB, rural zones are defined as regions outside urban areas consisting of 50,000 or more residents, with no adjacent urban development, in an effort to make property rehabilitation easier in otherwise remote areas.
New Reporting Requirements
Opportunity Zone investment are now required to be more transparent under the OBBB – QOFs and businesses operating within OZs must now report detailed data, such as asset values and locations, employment metrics and residential unit counts. Beginning in 2027, Treasury will publish annual public reports of such data, followed by impact assessments beginning in 2031. Noncompliance with the new reporting requirements can result in fines up to $50,000 per return for large-scale funds.
Windham Brannon Can Help
Opportunity zone investment represents a significant opportunity for investors to explore tax-free growth opportunities by means of real estate projects and development. To learn more about how you can take advantage of this initiative while maintaining compliance and transparency with the updated law, contact your Windham Brannon advisor today, or reach out to Gary Gruner.
