| The Federal Opportunity Zone Program spurred billions in private investment into economically distressed communities by offering tax incentives for capital gains invested into Qualified Opportunity Funds (QOFs). Investors could defer and reduce capital gains taxes and completely avoid tax on appreciation of capital gains when invested for 10 or more years. While the Program has catalyzed real estate development and business growth across thousands of designated tracts, it also drew scrutiny for lack of transparency and uneven community impact. With the passage of the One Big Beautiful Bill in July 2025, the Federal OZ Program will soon enter its next phase: “OZ 2.0.” Most importantly, the Federal OZ Program was made permanent, and OZ 2.0 now includes a decennial redesignation process to ensure zones remain aligned with economic need. Notably, OZ 2.0 brings new benefits for Qualified Rural Opportunity Funds and a simplified rolling five-year deferral structure that replaces the prior rigid deadlines. These updates aim to sharpen the Program’s focus, improve accountability, and unlock more capital for underserved areas nationwide. Key Changes in Federal Opportunity Zone 2.0 Program: -Governors will submit new OZ designations to the Treasury every 10 years starting July 1, 2026, with new zones effective January 1, 2027, and each designation lasting a decade -New reporting obligations are introduced for QOFs and qualified Opportunity Zone businesses, aiming to improve transparency and track community outcomes -New penalties have been established for QOFs failing to meet reporting requirements Tax Benefits: -Beginning January 1, 2027, gains invested into a QOF receive a rolling five-year deferral instead of a fixed inclusion date -Standard QOFs get a 10% basis step‑up 5 years after the gain is invested in the QOF -If held 10 years, appreciation on the invested capital gain is tax‑free -For holdings beyond 30 years, the tax basis is fixed at the 30‑year fair market value—no further basis step‑up beyond that date Tightened Eligibility Criteria: -Low‑income tract definition now requires: -Median family income ≤ 70% of state or metro median income, or -Poverty rate ≥ 20% plus median income ≤ 125% The contiguous‑tract rule is repealed Qualified Rural Opportunity Funds: -New designation where at least 90% of eligible property is rural -30% basis step‑up 5 years after the gain is invested in the QOF -Substantial improvement threshold is cut to 50% of adjusted basis for existing structures (vs. 100% standard for non-rural areas) Our firm helped get Ohio’s OZ Statute passed, and we’ve drafted all four amendments to Ohio’s OZ Statute since the Program was introduced. We’ve also obtained more Ohio OZ awards that any other firm, with 100% of the OZ applications we submitted being awarded in the full amounts we requested over the past six years. We have helped countless Clients pair the Federal OZ Program with Ohio’s Program to maximize OZ benefits. Critical OZ 2.0 Policy Milestones: Before Dec 31, 2026, investments follow original policy -Deferral through end-2026 -No taxation of appreciation on capital gains investments held for 10 years or more Starting Jan 1, 2027, OZ 2.0 fully in effect -Program permanence, new zones, 5-year rolling deferral, new basis step-up rules, rural zones get further enhanced benefits Zone redesignations begin July 1, 2026; new zones effective Jan 1, 2027; lobbying is already underway Invest capital gains into a QOF before Dec 31, 2026 to lock in original OZ 1.0 benefits; January 1, 2027 or later investments will follow the 2.0 path |
