Beautiful Opportunities and Big Reporting Requirements - Opportunity Zones 2.0 and the One Big Beautiful Bill Act of 2025

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Major tax changes to Opportunity Zones have been enacted through passage of the One Big Beautiful Bill Act of 2025 (OB3). The first part of this alert outlines notable changes to the Opportunity Zone (OZ) program to help our clients maximize their current and future OZ investments. The second part of this alert outlines the benefits of the OZ program.

Highlights of Key Changes

• Permanency. The OZ program has been made permanent under OB3, with new Opportunity Zones to be designated every ten (10) years.
• New Opportunity Zone Designations. Beginning on July 1, 2026, the governor of each state is required to nominate census tracts for redesignation as Opportunity Zones. The new designations will go into effect on January 1, 2027, and will remain qualified OZs until 2036, when the governors will redesignate the Opportunity Zones.
• Rolling Gain Deferral and 10% Basis Step-Up. For investments made on or after January 1, 2027, gains deferred through OZ program investments will now be recognized on the fifth (5th) anniversary of the investment date. Further, OZ investors will have the benefit of a ten percent (10%) basis step-up immediately before the end of the five-year gain deferral period.
• New QOF and QOZB Reporting Requirements. Under new Sections 6039K and 6039L of the Internal Revenue Code, Qualified Opportunity Funds (QOFs) and Qualified Opportunity Zone Businesses (QOZBs) are now required to report certain information on annual tax returns. The new reporting requirements include information on the value of property held by the entities and numbers of employees. These provisions were effective as of July 4, 2025, meaning that these new reporting requirements apply to current QOFs and QOZBs for tax year 2026.
• New Tax Benefits for Rural Investment. OB3 enhanced the tax benefits for OZ investments in rural areas with the new Qualified Rural Opportunity Funds (QROFs), effective January 1, 2027. The QROFs have all the benefits of non-rural QOFs, with the added benefit of (1) a thirty percent (30%) step-up in basis after five years, instead of the ten percent (10%) described above, and (2) a reduction of the substantial improvement requirement for Qualified Opportunity Zone Business Property (QOZBP), which only has to exceed a fifty percent (50%) addition to the property basis (instead of 100% for non-rural QOFs).

OZ Benefits

As a friendly reminder, there are many benefits to the OZ program for individuals with capital gains, investors, real estate developers, business owners, and, with the new rules, anyone looking to invest in rural areas. Some of these benefits include:

• Gain Deferral. A taxpayer may elect to exclude eligible capital gains from its taxable income if the gain is invested in a QOF. To qualify as eligible, the capital gain must be from a sale or exchange with an unrelated party. Generally, the capital gains must be invested during the 180-day period following the date of the sale or exchange. Gains currently invested in the OZ program fall under the existing OZ rules and are deferred until December 31, 2026. Future gains deferred under the new rules effective January 1, 2027, will be eligible for the five-year rolling gain deferral discussed above.
• Gain Elimination. Under the OZ program, capital gains from appreciation on OZ investments are permanently excluded from tax when held for more than ten (10) years.
• Depreciation Recapture Elimination. Under the OZ program, depreciation recapture on OZ investments, in some instances, may be inapplicable when held for more than ten (10) years.
• Enhanced Rural Community Benefits. The addition of enhanced benefits for OZ investments in rural areas through the QROFs has the potential for significant impact in states with large rural areas.

How can Maynard Nexsen Help You with Opportunity Zones?

While there are many benefits to investing in an OZ, the rules for the OZ program can be challenging to navigate. The Maynard Nexsen team has been actively helping clients make use of the OZ program since its inception in 2018 and looks forward to continuing our services now that the OZ program is permanent. Our team is prepared to assist you with all aspects of OZ projects, including fund formation, risk assessment, and compliance with regulatory and reporting requirements. Front-end planning is critical in taking full advantage of the significant benefits offered by the OZ program, and the Maynard Nexsen team has the expertise to advise you throughout the investment process.