Permanent Opportunity Zones Under the OBBB: What Developers and Investors Need To Know

Summary: The One Big Beautiful Bill (OBBB) makes the Qualified Opportunity Zone (QOZ) program permanent starting in 2027, refining eligibility and expanding long-term tax incentives for investors. With enhanced benefits and new rural fund opportunities, developers should begin planning now to capitalize on these powerful, community-focused investment tools.

Real estate investors and developers have a fresh reason to pay attention to Opportunity Zones. The One Big Beautiful Bill (OBBB), signed into law July 4, 2025, extends and updates the Qualified Opportunity Zone (QOZ) program beginning in 2027. While the new version of the program takes a more measured approach than the original, it continues to offer meaningful tax incentives and long-term planning benefits for those investing in community development. For developers and investors alike, the updated QOZ framework represents both continuity and refinement – an evolution aimed at improving what worked and correcting what didn’t.

What’s Changing: A Fresh Start for Opportunity Zones in 2027

The timeline to make QOZ investments into the current QOZ map concludes for capital gains recognized on or before Dec. 31, 2026, but the OBBB launches a new version immediately after. This isn’t just an extension; it’s a redesign meant to fix weaknesses in the old system and focus investments where they’re needed most.

Starting July 1, 2026, each state will choose new QOZ tracts, which must then be approved by the U.S. Treasury. To qualify, a tract must now have a median family income under 70% of the area’s median (down from 80%). The old rule that allowed “contiguous” tracts (areas next to median income zones) is gone. The goal is simple: direct more capital into truly distressed or underserved communities, not just areas on the edge of gentrification.

New QOZ Program Rewards Patience With Bigger Tax Breaks, Longer Horizons

The new QOZ system gives investors a clear and flexible roadmap. Highlights include:

• Five-Year Deferral: New capital gains can be deferred for up to five years.
• 10% Basis Step-Up: After five years, investors get a 10% increase in their investment basis.
• 10-Year Gain Exclusion: If held at least 10 years, gain from disposing of a QOZ investment is permanently excluded from tax.
• 30-Year Cap on Gain Exclusion: Unrealized gains as of the 30-year mark are permanently excluded from tax, with no deadline to sell (unlike the original QOZ regime which required disposition to occur within 30 years).

This shift removes the old pressure to exit early. Investors can hold and grow their assets over time, aligning their tax benefits with long-term real estate projects.

Rural America Gets a Boost

A standout feature of the OBBB’s new program is the focus on rural Qualified Opportunity Funds (RQOFs). These funds receive extra incentives, including:

• 30% basis step-up after five years (instead of 10%)
• Only a 50% “substantial improvement” test compared to the standard 100%

These changes make it easier to finance housing, manufacturing, logistics, and energy projects in small towns – places that often struggled to attract investment before. For developers that aren’t already investing in rural areas, this could become a new frontier of tax-efficient growth.

Flexibility and Stability for Long-Term Investors

Under the old QOZ regime, investors had to juggle short deadlines and an uncertain future. The new structure fixes that. By creating a rolling deferral window and making the program permanent, the OBBB makes QOZs part of a long-term strategy, not just a short-term tax play. Now, developers can plan projects that take years to complete – such as mixed-use districts, affordable housing, or urban renewal sites – without worrying about losing benefits before their project matures. Institutional investors, private equity funds, and family offices can also create evergreen funds designed for steady growth rather than quick exits.

Other OBBB Tax Changes That Amplify QOZ Value

The OBBB doesn’t just improve QOZs, it also upgrades several related tax provisions that work hand-in-hand with the new QOZ framework:

• 100% bonus depreciation: Back for property placed in service after Jan. 19, 2025, this allows investors to deduct the full cost of eligible assets, including qualified improvement property.
• Increased Section 179 expense limits: A $2.5 million maximum deduction and phaseout threshold of $4 million (indexed for inflation) provides additional opportunities for deducting qualifying property acquired after Dec. 31, 2024.
• EBITDA-based interest deduction: Restores a more generous formula for deducting business interest, improving cash flow for leveraged deals.
• Completed contract method expansion: Lets large residential and mixed-use projects defer income recognition until completion, simplifying taxes and improving project flexibility.
• Permanent 20% QBI deduction: Ensures pass-through owners continue to benefit from reduced taxable income.
• Estate updates: A permanent $15 million estate exemption (indexed for inflation) gives multigenerational real estate owners greater long-term control and planning flexibility.

Together, these tools let investors layer multiple tax advantages on top of their Opportunity Zone strategies, boosting returns while maintaining compliance and cash efficiency.

How Developers and Investors Can Prepare Now To Get Ahead

With the new program starting in 2027, real estate professionals should begin planning now. Smart preparation can make the difference between being early to a new zone and missing out entirely. Key steps to consider:

• Track state zone selection: States begin redesignating tracts in mid-2026. Stay informed and build relationships with state and local officials who shape these designations.
• Structure funds early: Plan fund cycles and investment timelines that align with the five-year deferral and 10-year exclusion periods.
• Combine incentives: Integrate cost segregation, bonus depreciation, and financing strategies to front-load deductions.
• Explore rural opportunities: Evaluate smaller markets that may qualify for new RQOF incentives, especially those tied to logistics, housing, or clean energy.

The earlier developers identify qualifying properties, the faster they can deploy capital once the Treasury certifies the new tracts.

The Bottom Line: A Stronger, Smarter Opportunity Zone Future

The OBBB transforms QOZs from a temporary tax experiment into a permanent engine for economic growth. With stricter eligibility, clearer rules, and more generous benefits, the program encourages both profitability and community impact. For investors and developers, this means it is time to refocus: Combine sound real estate fundamentals with this long-term, tax-efficient strategy that builds value for both portfolios and communities.

For personalized guidance on how the QOZ program could impact your specific projects or investments, reach out to your KSM advisor today or fill out the form below.