There is good news for community development enthusiasts and opportunity zone investors. OZ legislation is making its way through Congress with promising momentum.
On May 12, the House Ways and Means Committee unveiled its massive 389-page reconciliation bill, dubbed The One, Big, Beautiful Bill. Within this legislative behemoth lies Section 111102, titled "Renewal and Enhancement of Opportunity Zones," marking the first concrete step toward extending this impactful program beyond its current 2026 expiration date.
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The silver lining: Congress still believes in OZs
This draft legislation sends a clear message: Lawmakers recognize the value opportunity zones bring to communities nationwide. The program's appearance in this flagship reconciliation vehicle validates the positive data Congress has been seeing — job creation, wage growth and rising home values in designated areas.
Clearly, there's genuine reason for optimism, especially with the bipartisan support anticipated in the Senate.
What's in the package? Six key OZ provisions
Let's break down what this draft legislation would do:
More targeted focus on truly low-income areas. The qualifying income threshold would tighten from 80% to 70% of area/state median family income, ensuring investments flow to communities that need them most. Any tract with income exceeding 125% of the statewide or metro-wide median would no longer qualify.
Fresh start with rural America in mind. Governors get to nominate new zones starting January 1, 2027, running through 2033. At least one-third of these designations (or the state's rural population share, if greater) must be in rural areas, creating new opportunities for overlooked communities; importantly, as it stands now, the legislation disallows contiguous designated tracts if at least one of the tracts is not low-income.
Earlier reset of the current map. The 2018 designations would now expire on December 31, 2026, two years earlier than originally planned.
New timeline for tax benefits. Gains invested under the original rules are recognized as scheduled on December 31, 2026; however, gains invested between 2027 and 2034 can be deferred until December 31, 2033, creating a fresh runway for this powerful economic development tool.
Simplified basis step-up structure/rural investment super incentive. Rather than the current two-tier approach, investors would receive a clean 10% step-up in basis after holding for five years.
Moreover, investments in qualified rural opportunity funds (QROFs) would enjoy a supercharged 30% basis increase after five years — triple the urban rate. Plus, rural building renovations would only need to improve properties by 50% of original basis instead of 100%.
Opening the door to ordinary income. Individuals could defer up to $10,000 of ordinary income per year (with a lifetime cap), broadening participation beyond just those with capital gains.
Room for improvement: Constructive feedback
While the draft demonstrates a genuine commitment to opportunity zones, there are several areas where the Senate could strengthen the legislation.
The potential 2025-26 "capital freeze." The current timeline creates an awkward gap between programs. Investors harvesting gains in late 2025 or 2026 face a difficult choice: invest in zones that might disappear after 2026 or wait until the new map and better incentives arrive in 2027. This could unintentionally stall capital deployment precisely when we need it most.
Balancing urban and rural success. While bringing more investment to rural America is admirable, the rigid quotas might force successful urban revitalization stories to end prematurely. Cities like Birmingham, Ala., and Erie, Pa., have shown remarkable progress, but still have significant untapped potential.
Benefits that could be stronger. The single 10% basis bump, while helpful, represents a one-third reduction from the original maximum 15% benefit. And while allowing ordinary income participation is conceptually inclusive, the $10,000 cap falls below the minimum investment threshold for most qualified opportunity funds. (Permitting the creation of “funds of funds” could have meaningfully addressed this issue, but the bill does not include it.)
What's next in the legislative journey
The bill has passed the House, and the Senate is expected to take the measure directly to the floor in mid-June, where OZ champions may propose amendments to address various shortcomings within the existing bill.
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Here's how the Senate could address these concerns:
- Make OZs permanent with rolling deferrals to eliminate future "cliff" years and stabilize fundraising. This is most likely No. 1 on the wish list of everyone in the OZ community.
- Bridge the 2025-26 gap by either moving up the start date, creating an overlap period or grandfathering in projects already underway … or all three!
- Allow interim gains to be reinvested within the same fund without triggering taxes, keeping multiasset strategies viable.
- Meaningfully expand non-capital gains participation by eliminating the ordinary income deferral cap, or at least raising it to an amount that would enable investment in QOFs or QROFs (most funds now carry a minimum investment of either $50,000 or $100,000) without needing to enhance the investment with unrealized capital gains.
The bottom line
The future of opportunity zones looks promising, with bipartisan recognition of the program's value. However, without some thoughtful adjustments to the current draft, we risk a temporary slowdown in 2026 that could delay crucial community investments.
The good news? OZ proponents like Senators Tim Scott and Cory Booker can be counted on to do what’s needed to strengthen this bill. There's still time for improvement, and the program's inclusion in this major legislation signals its enduring importance in America's community development toolkit.
The window for influence is now open — but it won't stay open for long.
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