OBBB Expands Opportunity Zone Tax Benefits, Adds Rural Incentives

The One Big Beautiful Bill Act (OBBB) has introduced new provisions regarding Opportunity Zones (OZs), giving real estate investors expanded access to tax benefits. The OBBB will usher in a new set of opportunity zones in 2027, sunsetting the current set of OZs at the end of 2026. Eligibility criteria for designating a tract as a low-income community have been narrowed. Now a permanent tax incentive, opportunity zones can provide extensive tax relief to eligible investors in more ways than before. As one of the biggest users of the OZ tax incentive, real estate investors should take note of the upcoming shift in opportunity zones to maximize their tax savings.

Opportunity Zones – Definition and Meaning

Opportunity Zones were created by the 2017 Tax Cuts and Jobs Act (TCJA). The purpose of these programs is to use tax incentives to encourage private investment in low-income, high-poverty areas. The original rules for OZ investments allowed a 10% basis step up for investments held for five years, with an additional 5% for investments held for 7 years.

Governors designate OZs based on criteria that include median income and poverty levels, allowing investors with unrealized gains the chance to deposit their gains into an OZ fund. Starting July 4, 2025, for a low-income community to be eligible for Opportunity Zone investment, it must include either:

  • A census tract in a non-metropolitan, rural community or
  • A census tract in a metropolitan, urban community.

One Big Beautiful Bill Act (OBBB) Impact on Opportunity Zones

The OBBB aims to add more transparency to OZs and provide more support for rural communities. Previously, the majority of opportunity zones were located in metro areas; new incentives aim to distribute investment opportunities more evenly.

New OBBB provisions include:

  • New sunset date for current OZs (end of 2026)
  • New OZs designated by state governors
  • Narrowed eligibility requirements (eliminating census tract provisions)
  • Incentives to invest in rural areas
  • Annual investment reporting requirements

Updated Sunset and New Zones for 2027

Originally, according to the TCJA, the current set of OZs were due to sunset at the end of 2028. The OBBB has pushed that sunset up to the end of 2026 instead, with a new cohort of zones to be announced in January 2027. Governors will be tasked to pick new zones every 10 years. Some census tracts currently eligible for the OZ tax break will not be included in the new round.

The deferred capital gains under the TCJA will be recognized by December 31, 2026, but the OBBB changed this rule to be a five-year rolling deferral period. So, if you make an OZ investment on March 1, 2027, the capital gains will be recognized by March 1, 2032. Investing in existing OZs in 2025 and 2026 could reduce potential tax savings.

Incentives for Investments in Rural Areas

OBBB introduces new incentives to lure investors to rural areas. Rural communities are defined as places with fewer than 50,000 people, excluding tracts adjacent to larger towns or cities. If investors put money into a rural community and hold the investment for five years, they can be eligible for up to a 30% reduction in the capital gains tax owed on deferred capital gains. In comparison, those who invest in other OZs would get up to a 10% reduction. The additional 5% for investments held for seven years no longer applies under the OBBB.

Anders Real Estate advisors closely advise clients in the real estate industry on new and emerging legislation to help lower their tax burden and seize growth-fueling opportunities. Request a meeting below to learn how we can help you navigate these changes.  

Written with Anders tax manager Dalton Zeiser, CPA.

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