This article is co-authored by Paul Ellis and Bob Yates who both lead our dedicated Real Estate Tax Consulting Group.

Opportunity zones first came to fruition under the Tax Cuts and Jobs Act (TCJA) as a method to revitalize economically distressed communities by providing tax incentives to real estate investors and developers who purchase property in these areas. The One Big Beautiful Bill Act (OBBBA) made some prominent changes to opportunity zones, giving this favorable tax incentive a permanent shelf life, along with other modifications.   

Our dedicated real estate tax consulting pros take a deep dive into opportunity zones, plus offer planning considerations to keep in mind.

OBBBA Changes to Opportunity Zones

Under the OBBBA, the opportunity zones program is made permanent, plus tightens where zones can be drawn, creates enhanced benefits for rural projects and triggers new compliance obligations. Learn more about these key changes. 

Established permanence—and a new 10-year cadence for designations.

The headline change is durability. The OBBBA eliminates the Dec. 31, 2026 “sunset” for new opportunity zone investments and makes the program permanent. It also introduces a decennial redesignation process: every 10 years, state governors will propose opportunity zones census tracts and the U.S. Treasury (the Treasury) will certify them, with the first new round keyed off July 1, 2026 (and every 10 years thereafter). This gives the market recurring entry points instead of a one-time window, while also allowing policymakers to re-target zones as conditions change. 

Rolling gain deferral and a single (10%) basis step-up.

Under prior law, deferred gain was recognized on Dec. 31, 2026, and investors could earn 10% and additional 5% basis step-up by hitting five- and seven-year holding periods before that date. The OBBBA replaces this with a rolling five-year deferral. 

For post-2026 investments, the recognition date floats with each investor’s anniversary date. The basis step-up is standardized at 10% immediately before the end of that five-year deferral (the old extra 5% at seven years is gone). Pre-2027 investments remain under the old rules. Functionally, this smooths planning and removes the cliff at 2026, while trimming the total step-up. 

Strengthens rural opportunity zone incentives: new qualified rural opportunity funds (QROFs) and lower improvement bar.

Congress clearly wanted more capital to reach non-metro communities. Two levers do the work:

1. Definition of “rural area.” The IRS has already clarified that a rural area is any place other than a city/town with more than 50,000 people or an urbanized area adjacent to such a city/town. The same notice reduces the “substantial improvement” threshold to 50% of basis (down from 100%) for property in opportunity zones comprised entirely of rural areas, effective July 4, 2025. That’s an immediate, mechanical boost to feasibility in many rural tracts.
2. QROFs. The OBBBA creates a qualified opportunity fund (QOF) subclass that must invest entirely in rural opportunity zones. In exchange, investors in a QROF get enhanced economics—most notably, a 30% basis step-up at year five (versus 10% for standard QOFs). When paired with the 50% improvement threshold, this notably lowers equity required and shortens breakeven timelines for many rural rehabs and ground-ups. (Most QROF provisions start after Dec. 31, 2026.) 

Redrawn opportunity zone map: stricter income tests and end of contiguous tracts.

Critics argued the original map allowed too many borderline or already-revitalizing areas. The OBBBA narrows eligibility by: 

1. Lowering the median family income test to 70% (from 80%) of area/state median.
2. Introducing an anti-gentrification trigger that disqualifies tracts with median income above 125% of the state/Metropolitan Statistical Area median (even if they meet the poverty test).
3. Repealing the “contiguous tract” rule.
4. Ending the blanket designation for all low-income communities in Puerto Rico effective after 2026. Expect the 2026 and 2027 redesignation to prune higher-income outliers and re-focus opportunity zone status on persistently distressed places. 

10-year gain exclusion remains—with a 30-year “freeze.”

The familiar post-10-year fair market value (FMV) basis step-up—the engine of opportunity zones’ long-term, tax-free appreciation—remains intact under the permanent regime. However, the OBBBA caps the FMV step-up after 30 years: if you hold longer than three decades, your basis is frozen at the FMV on the 30th anniversary. For many funds with 10–to 15-year horizons, this won’t bite. Family offices or evergreen vehicles will have a long-range planning constraint to watch. 

New reporting, transparency, and penalties. 

One of the loudest policy critiques of opportunity zones has been data scarcity. The OBBBA answers with new reporting regimes for both QOF and qualified opportunity zone (QOZ) businesses, including asset values, locations, NAICS codes, investment amounts by tract, property type (owned versus leased), residential unit counts and employment figures—plus investor-level reporting at disposition. Failure to comply can trigger meaningful penalties, scaled up for larger funds. Expect a mix of updated IRS forms and companion regulations. Fund counsel should plan for heavier data ops and annual attestation processes. 

New effective dates and transition. 

Most opportunity zone changes apply after Dec. 31, 2026 (i.e., beginning in 2027). The rural “substantial improvement” cut to 50% took effect immediately on July 4, 2025. The first redesignation cycle begins July 1, 2026, with new tracts certified thereafter and effective the following year (pending procedural guidance). 

Investment timing.  

The OBBBA does not change the familiar 180-day window to roll an eligible gain into a QOF. You still have 180 days from when the gain is recognized to invest, and the same start-date options that existed under prior regulations continue to apply for pass-through owners (e.g., partners and S corporation shareholders may elect among the existing timing choices tied to the entity’s tax year).

Likewise, the substantial improvement test remains intact in most zones: a QOF or QOZ business generally must add improvements equal to 100% of the building’s adjusted basis within 30 months. The OBBBA introduces a single, targeted exception for rural zones: if the property sits in a QOZ that is entirely “rural” under the new definitions, the improvement threshold is reduced to 50%, while the 30-month clock itself is unchanged. In short, timing mechanics are the same, but qualifying rural projects can reach compliance with half the improvement spend compared with standard opportunity zone tracts.

Planning Considerations

Practical takeaways for investors and real estate owners looking to enhance their real estate investment strategy include: 

• Reassess rural opportunities now. If your pipeline includes smaller-market projects, the 50% substantial improvement rule and QROF 30% basis step-up at year five can materially change outcomes. Refresh pro formas and financing models/deal structures for rural tracts that previously “almost penciled.”
• Check tract durability before you commit. With decennial redesignations, be mindful of your plans and projections. Monitor forthcoming grandfathering guidance for projects that begin before a tract loses opportunity zone status.
• Reset tax timelines. The shift to a rolling five-year deferral replaces the Dec. 31, 2026, cliff. Update models for investor-specific year-five cash tax impacts, exit windows and the long-term 30-year cap on the 10-year FMV step-up.
• Upgrade compliance and data. New reporting and penalties mean QOFs and QOZBs should stand up tract-level asset and jobs tracking, investor disposition tracking, and documentation for “entirely rural” status and 50% improvement test.
• Coordinate with other incentives. Layer opportunity zone benefits with cost segregation, bonus depreciation, state/local programs and cost-recovery strategies where facts allow—mind anti-abuse and recapture rules.

Bottom Line

The OBBBA trades a looming sunset for a stable, permanent opportunity zone framework, but with smarter targeting, bigger levers for rural America and more accountability. For investors, it means opportunity zones remain a core tool in the real estate tax strategy toolkit, just with new maps, new math and new paperwork. For communities, the redesignation cadence and rural emphasis aim to steer capital where it’s hardest to raise and longest overdue. As always, the final contours will sharpen with IRS regulations—but the strategic direction is clear. 

It’s essential to work with experienced advisors who specialize in real estate tax strategies, such as opportunity zones, to ensure your overall investment is set up for optimal results. To obtain assistance with your real estate tax planning, contact our pros today.