Qualified Opportunity Zone updates: What investors should know

By Sara Skluzacek, CPA, CMA, MAcc

Qualified Opportunity Zones (QOZs) were established under the Tax Cuts and Jobs Act of 2017 (TCJA) to incentivize investment into low-income communities. Investing in a QOZ property, which requires investing eligible gains into a Qualified Opportunity Fund (QOF), has been popular among investors due to the tax benefits it provides. Although the One Big Beautiful Bill (OBBB) Act has permanently extended the QOZ program, it has also introduced a few changes investors should consider.

 

If you’re currently invested or planning to invest in a QOZ property, here’s what you should know about these changes.

 

New opportunity zone designations and tighter zone restrictions

 

With the OBBB’s permanent extension, a more streamlined version of the QOZ program will start in 2027. Governors will now be required to select new Census tracts within their state every decade, which will serve to redesignate opportunity zones. The new Census tract selection will begin on July 1, 2026; the first new zone designations will take effect on January 1, 2027.

 

While this approach ensures the program’s benefits are directed toward areas most in need, it creates a gray area for investors: TCJA-designated opportunity zones are currently in effect until December 31, 2028.

 

This means, under current rules, there will be a period of overlap between the TCJA and OBBB opportunity zone designations. The OBBB has also tightened opportunity zone qualification criteria, which could impact the designation of existing zones.

 

We are currently waiting on further clarity and guidance on what this overlap could mean for investors. That said, we can count on current opportunity zone designations to remain in place through the end of 2026.

 

Introduction of Qualified Rural Opportunity Funds (QROFs)

 

The OBBB has also introduced Qualified Rural Opportunity Funds (QROFs) to encourage more investment in rural areas. Effective July 4, 2025, investments in zones designated as rural offer even more incentives.

 

Whereas investors qualify for a 10% step up in basis after holding a QOF investment for five years, this benefit increases to a 30% step up for QROF investments.

 

Another benefit that now comes with QROF investments is a reduction of the improvement requirement. Investors rehabilitating buildings within traditional opportunity zones are required to invest at least 100% of the property’s adjusted basis in improvements. For QROFs, however, this requirement drops to 50%, which could significantly reduce a project’s total cost.

 

Changes to gain deferral, reduction, and exclusion

 

Part of the QOZ program changes brought about by the OBBB include shifts in the deferral of gains, reduction of basis, and exclusion of appreciation. One of the main benefits of the new OBBB program is that it gives investors a 5-year rolling period (from the date of the investment) to defer gains instead of a fixed recognition date.

 

In addition to the 30% step up in basis benefit of QROF investments, the OBBB maintains the TCJA-era ability to qualify for a 10% step up in basis after holding a QOF investment for 5 years.

 

When it comes to exclusion, the new OBBB rules allow investors to lock in value after 30 years. The current TCJA rules include an exclusion expiration date of December 31, 2047.

 

Upcoming (2026) deadline for recognizing gains deferred under the TCJA QOZ program

 

Although the OBBB has extended the QOZ program, investors must recognize gains deferred under the TJCA’s QOZ program by December 31, 2026.

 

This is an investor-level event and not a taxable event reported by the QOF. In other words, investors are responsible for recognizing these gains on their 2026 tax returns.

 

If you’ve deferred gains under the current QOZ program, it’s important to consult with your tax advisor to address the following:

• Determine the dollar amount of deferred gain to recognize
• Plan for the tax implications of recognizing this gain
• Consider tax planning strategies to offset this gain
• Ensure you have the cash flow needed to pay these taxes

 

Thinking of investing in a QOF or QROF?

 

If you are planning to invest in a QOF or QROF, it’s important to think about timing.

 

Investing in 2026:

• This could be your last chance to invest in a QOZ property within TCJA-designated zones.
• Plan to recognize gain in 2026 but know you could exclude the gain on the appreciation of your investment if you hold it for 10 years.

 

Waiting until 2027:

• This allows you to take advantage of the rolling 5-year deferral program.
• Could be advantageous if you believe your investment will be in a zone that will be designated as a QROF under new opportunity zone designations.

 

 

Shine a light on your options

 

Investing in a QOZ property—even in 2026—can provide you with substantial tax advantages. If you’re invested in or considering a QOF investment, consider reaching out to your investment advisor to plan for how the 2026 gain recognition deadline and new OBBB rules could impact you.

 

It’s important to gain a clear picture the tax implications of your investment. Our tax advisors are here to provide guidance on current tax laws, compliance requirements, and filings related to QOFs.

 

To learn more about how Abdo can bring clarity to your next steps, contact us today.